The Obama administration is urging Congress to approve a limited extension of the first-time homebuyer tax credit, and a one-year extension of the temporary $729,750 loan limit in high-cost housing markets for mortgages backed by the Federal Housing Administration, Fannie Mae or Freddie Mac.
Senate Democrats are reportedly proposing an extension of the first-time homebuyer credit, due to expire on Nov. 30, to apply to homes under contract by April 30.
The extension would maintain the current cap on the credit, which is equal to 10 percent of a home’s purchase price, at $8,000, but expand the program to allow homeowners who have lived in their home for at least five years to claim a credit of up to $6,500 if they decide to move.
Income limits would also be expanded from $75,000 to $125,000 for individuals and from $125,000 to $250,000 for couples, Bloomberg reported, citing an aide to Senate Majority Leader Harry Reid, D-Nev. The measure is to be attached as an amendment to HR 3548, a bill extending unemployment benefits.
Real estate industry groups say an extension of the first-time homebuyer tax credit is needed to sustain this year’s rebound in home sales. Critics have said most who claim the homebuyer tax credit would have purchased a home anyway, making it an inefficient method of stimulating the economy — and an artificial prop for home prices (see story).
Although the Obama administration refrained from spelling out exactly how it thinks an extension of the tax credit should work, Treasury Secretary Tim Geithner and Housing Secretary Shaun Donovan said in a statement today that they welcomed efforts taken by Congress to extend the credit "for a limited period."
Any extension should include "strict measures to combat tax fraud" and protect responsible homeowners, they said. The IRS recently reported that it had identified 167 criminal schemes and opened nearly 107,000 civil examinations involving the credit as of Sept. 30 (see story).
Industry groups have also pushed for an extension of the higher loan limits for FHA, Fannie Mae and Freddie Mac. The secondary market for mortgages that don’t carry government backing collapsed in late 2007 and has yet to recover, and mortgages above the limit are more costly and carry stricter underwriting standards. …CONTINUED
Although the temporary $729,750 cap isn’t scheduled to expire until the end of the year, The National Association of Realtors, the Mortgage Bankers Association and the National Association of Mortgage Brokers this week wrote House and Senate leaders urging them to act quickly on an extension.
When the limits were allowed to step back down to $625,500 at the beginning of this year, it took four months after Congress restored the $729,750 limit for lenders to follow suit, the groups said.
The impending expiration of the higher loan limits is already having an impact on borrowers, the groups said, with some lenders no longer underwriting certain loans at the current interest rate because they can’t be certain whether they will be able to sell the loans to secondary market investors, and can’t or won’t keep them in their own portfolios.
Consumers can’t lock in current interest rates beyond 60 days for loans over $625,500, the groups said. Loans that don’t close before year-end will need to be re-underwritten, and may then be declined because of the higher interest rate and resulting mortgage payment.
Mortgage preapprovals or home purchase contracts are being complicated by the loan-limit uncertainty, making shopping difficult for would-be homebuyers, the groups said.
In their statement, Geithner and Donovan agreed families "are already applying for mortgages that are being turned down or priced higher due to this impending deadline."
They urged Congress to "enact the extensions immediately in order to assure the smooth supply of capital to the housing market."
Geithner and Donovan also said the administration will work with Congress to ensure that a Housing Trust Fund created by the Housing and Economic Recovery Act of 2008 gets $1 billion in funding as previously intended. The fund, which supports housing for extremely low-income families, hasn’t had an effective funding source, they said.
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