Blog of the Mortgage

HUD To Monetize First Time Buyer Credit
May 13th, 2009 11:33 PM
Just when you thought we couldn't throw anything else at Housing here comes HUD Secretary Shaun Donovan with a "plan" to move something like 160k houses across the country.

HUD has plans(plans) to allow for first time home buyers to use their tax credit (as issued by the IRS through HERA -up to $8k etc. see post here).
You can read all of Secretary Donovan's Speech here:
The Key paragraph copied in the press here:

We all want to enable FHA consumers to access the tax credit funds when they close on their home
loans so that the cash can be used as a downpayment. So FHA will permit trusted FHA-approved
lenders and HUD-approved nonprofits, as well as state and local governmental entities to
"monetize" the tax credit through short-term bridge loans. We think the policy is a real win for
everyone, ensuring that borrowers can tap into the numerous organizations that are already part of
the FHA network to receive this additional benefit. FHA will be publishing the details shortly

Notice shortly?

So, I've been in the field these last couple of days checking on this plan and we're all scratching our heads.
  • If the IRS is in charge what is HUD doing playing with their money?
  • HUD barely has enough staff to police itself let alone administer another program
  • What about the "non-profits" that they want to put the money through. When Nehemiah and Ameridream had their thing going on they were making $500 through the transaction
  • What about allowing brokers to fund the credit etc. etc. etc.
With that in Mind I figured I'd share with you our thoughts as a Mortgage Banker.
I believe our firm has done a stellar job of managing through this crisis (read: Financial Tsunami) and while on the conservative side this is a boon to us long term.
Please note: These are not opinions of mine necessarily but very likely opinions I will have to sell if and when HUD gets around to publishing a new ML on the speech above.

Here's what we know.
  • HUD is going to allow monetization of the tax credit for use as downpayment in some fashion but details aren't finalized.
  • Mortgagee Letter 2009-15 was posted on 5-11-09 and removed from HUD's website on 5-12-09 for unspecified reasons.
  • We saw the ML before it was pulled.  It said that governmental agencies and FHA-approved nonprofits could offer tax credit advances with second liens, and that those same entities along with FHA-approved mortgagees could provide short-term loans secured by the anticipated tax credit.
  • The ML did not state that 501(c)3 nonprofits could provide the loans.
 
Comments on the above.
 
  • It is extremely unlikely that FAMC would accept short-term loans provided by FHA mortgagees.
  • Regarding governmental agencies, early research shows that tax credit loans provided by State Housing Agencies may only be used in conjunction with a first lien made by the State Agency, which would make the program ineligible for Wholesale lending.  There might be a Retail application with approved lender status.
  • The secondary market has not provided guidance on their acceptance of tax credit loans so we cannot participate in any fashion prior to that guidance.
  • Once FHA and secondary market guidance has been received we will assess the options, determine our appetite for the associated risk, then announce if, how, and when we might be able to allow the use of these loans for the borrower's down payment in conjunction with FHA loans. 
  Ladies and gents, that's the story and we're sticking to it. As you know can see this looks to us (for the time being) as a Retail only option for your customers..yes, I know.. DAMN RETAIL! But, if we keep up the good fight we might close one or two extra loans/month with this program should it be put into writing/action.
Posted by Raoul Badde on May 13th, 2009 11:33 PMPost a Comment (0)
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