8000 Tax Credit Bridge Loan For Down Payment Assistance: A Possibility?

This week in a prepared speech given to the National Association of Realtors , Secretary of Housing and Urban Development Shaun Donovan either dropped a bombshell or let something slip regarding the possibility of “monetizing the 8000 tax credit” where people could use the 8000 tax credit (in essence) for their down payment.

The problem here was that details would be forthcoming – as in nothing is final yet.

But already, we are starting to see that “non profit” organizations are announcing the availability of the program where people can “monetize” their tax credit and use it as a down payment in the form of a “bridge loan”. Fun!

What HUD Secretary actually said (an excerpt from his speech):

And we are taking action to further help the housing market recover. I’m excited to announce here at NAR that FHA’s policy on the “monetization” of the first-time homebuyer tax credit will soon be published. I know that you’ve been waiting anxiously to hear FHA’s position on the matter. We, like you, believe that this new tax credit is not only a tremendous opportunity for first-time homebuyers, but also an enormous benefit for communities struggling to deal with an oversupply of housing. According to estimates by the National Association of Home Builders, this new tax credit will stimulate 160,000 home sales across the nation – 101,000 of which will be first time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first time buyer purchased their home.

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.

My Translation:

Remember back in October when legislators got rid of the “down payment assistance” programs and gave the reasoning behind it that defaults for people who used down payment assistance programs were “higher than normal”? If this idea happens in some form — any form — what it is doing in essence is bringing back a form of down payment assistance that allows people to move into homes with “no money down”.

Is the “monetization of the 8000 tax credit in the form of a bridge loan” a bad idea?

Yes.

For two reasons.

1. This “bridge loan” idea comes at an abnormally high price to the consumer (as in the interest rate could easily approach 100% on an annualized basis).
2. If the statistics say that the down payment assistance programs resulted in abnormal default rates, any variation of this proposed idea is essentially “bringing the DPA back” and I once learned that insanity was doing the same thing over and over again and expecting a different result.

Do I really care?

No, not really. A few billion here or there in today’s legislative world doesn’t really get me all worked up anymore. I have almost forgotten how many zeros are in a Billion. I am going to spend my time trying to help as many people who haven’t saved up enough money for a 3.5% down payment a bridge loan with a 100% interest rate!

I get paid on commission you know.

And yes, I will be sure to keep you posted on what whatever-the-final-version-of-the-monetization-of-the-8000-tax-credit-that-gets-released is.

Scottsdale Mortgage Rates May 15 2009

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