Blog of the Mortgage

Will Monetizing the $8k tax credit put $$ in YOUR pocket. HUD ML09-15 released

June 7th, 2009 3:36 PM

Only 30 more days until the Mid-Year marker.
Is your 2009 going better than 2009??
If you're reading this e-mail I would have to say YES!

I've received numerous calls/e-mails in the last 2 days since HUD reposted ML09-15. The last time I posted on this I was concerned that we might not get access to this HUD announced program. But we kept up the good fight. :)
First we're told we would monetize the $8k homebuyer tax credit very soon (Sect'y Donovan in early May). Then someone at the Arizona HOC went public and indicated (as much as they knew) that this policy was not going to be put into place. NAR went from doing back flips and cartwheels to trying to remove their unusually large feet from their mouths. BUT: this is the Government we're talking about here and I'd be amazed if anyone within the same division EVER knew what was really going on.
So, true to form: ML09-15 is back! Monetization of the $8K tax credit. Awesome you say? Now my thin buyers can come in with even less?? We can sell homes to everyone! Again: not so fast says HUD.
Given the dire circumstances that our national housing market is in and the heightened state of awareness all involved in housing carry, the era of 100% financing is not due to rebound that soon.
So, it turns out that we will be able to ease some of the newer closing cost pain brought about by HUD changes to down payment and closing cost financing. The credit will NOT go against the 3.5% statutory investment but it WILL be permitted to offset over-all closing costs. Not a bad gig when you consider that this good for singles that earn up to $75k and couples that earn up to $150k. That's a lot of folks and a lot of houses. Especially considering that we're closing loans for folks (couples) that are making around $15-18/hr. each for full time work. Many have the down but get gifts for closing costs as well.
A quick Synopsis of the $8k Credit is posted here:
From the Letter (HUD):
"The homebuyer's downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity). Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum down payment, but may be used as additional down payment, buying down of interest rate, or other closing costs."
From Potomac Partners (whom I've posted here numerous times):
HUD will continue to permit "government agencies and instrumentalities of government" to offer tax credit advances with second liens that can be used for the down payment, closing costs and prepaid expenses. Currently, ten state housing finance agencies have programs that will apparently monetize the tax credit. These states are Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, and Tennessee. Information on these programs is available here

More from the Letter:
Conditions:

The proceeds of the sale of the tax credit may not exceed the anticipated tax credit due the home-buyer based on the computations of form IRS 5405;

The borrower must submit a signed certification that the tax credit is not subject to offset due to other indebtedness.

A copy of the borrower's tax refund and/or the IRS 5405 must be collected and retained in the FHA case binder.

Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer. In FHA's view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)

Due Diligence
FHA expects that entities purchasing tax credit assets will employ appropriate due diligence measures including, but not limited to:

Require the homebuyer to draft and provide the IRS form 5405 "First-Time Homebuyer Credit."

Contact the borrower's employer and review pay stubs to confirm there are no outstanding garnishments.

Review the homebuyer's credit report to ensure there are no unpaid student loans, or other obligations that could be offset against the credit.

Validate that all of the eligibility requirements for the tax credit are fulfilled

Review previous tax returns and IRS tax assessment letters, if any, to determine that the borrower does not have unsettled obligations to the IRS

More from me:
If nothing else your customer (after closing cost credits) will be able to get THE LOWEST rate in the market at the time of lock for the extra $$ in points you can collect to buy down the rate.

The Quandary: How long to wait for this to get put into play for you and me? As usual we will all have to sit on our hands and wait anxiously for our investors to deliver and answer.

You've got FHA's position.

Now we need access to the source of funds (ie. who delivers the check at closing?). And did you see? There's no real capitalistic play here (ie. Nehemiah and their $500/unit charge) @ 2.5%. Not too many are going to want to lay that kind of $$ on the line for 2.5. I understand that a 2 year Treasury note is yielding less than 1% but for my money a mistake by the borrower on the tax form above and poof.

Then you need the large primary buyers to come with their answers (10 days -3 weeks). Now you need all the mid-tier players to interpret the same guides and salability/risk issues that present themselves that with brand new programs (1 week-3 weeks). So, by mid-end of July our customers will have access to this program.

That's great news and will extend the summer buying season well into the new school year (a typical lull period for business).

But remember: Legislatively this credit expires on 12.1.09! That means you will have mid-tier and primary players begin pulling access anywhere from 30-45 days prior to the credit expiration. Wow!
We will have 90-120 days to sell this product actively and then be off to the next issue (2009 holiday sales season)...120 days? Hmmm. Maybe not so many houses after all?
At Least NAR has national TV spots talking up the $8k credit eh?
So, do you market this? Only to your Realtors and existing prospects that are going to close in Late July and August. Carry a stack of the IRS forms above in your files and be prepared. Once you see the income limits exceeded back the borrower's away from this idea. An effective marketing piece needs 60+ days to begin producing results.
Secondly: do you even bother? For my money? No. this will be a convenient alternative. For most it will lead to one or two additional loans in the above listed time frames but for the work and pain of finding a home are they worth it? Could you close an additional 4 loans trying to figure out ways to close those two?
At least now we know what HUD wants: Skin in the game. Bless 'em! :)

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Have a great Spring and Summer Selling season.

You'll need the following links to download these forms:

Education Station
Government Loan Programs

Remember to Go out and have fun!

Posted by Raoul Badde on June 7th, 2009 3:36 PMPost a Comment (0)