Dennis Norman
By: Dennis Norman
Today, testifying before The US House of Representatives Small Business Committee, the Mortgage Bankers Association (MBA) told the committee that the current credit cycle and recession began in the U.S. housing market, and recovery will not be complete until the current oversupply of house on the market has dramatically decreased.
The MBA then cited the recent report by the IRS that over 1.4 million taxpayers have benefited from the tax credit. “Although (the) MBA is seeing some improvement in the housing market, it is essential that the favorable impact of the first-time homebuyer credit be allowed to continue beyond the upcoming expiration date of November30, 2009.”
The MBA said the excessive inventory of available homes will continue to put “downward pressure on home values” and that “demand is not keeping up with the current supply.”
The MBA recommended to the committee the following changes to the current tax credit:
- Expand eligibility to ALL homebuyers – While the tax credit has proven to be effective in helping first-time homebuyers, a large number of Americans are thinking about moving from their current home for various reasons and might be incented by a tax credit to do it now, when the economy needs it the most. Increase the tax credit to a maximum of $15,000
- Increase the tax credit to up to 10 percent of the home purchase price up to a maximum of $15,000. The credit may include a phase-out based upon adjusted gross income as reported on a borrower’s most recent tax returns.
- Require the tax credit to be repaid in certain instances – The borrower should repay the tax credit only if the residence is sold within the first three years (exception for employment-related moves) or in the event of a taxpayer default on any other mortgage that existed at the date the tax credit is claimed. This would discourage “buy and bail” behavior, where a borrower uses the tax credit for his or her advantage and walks away from an existing mortgage obligation.
- Tax credit should be available for settlement – If practical, facilitate the Internal Revenue Service (IRS) sending funds claimed by the taxpayer directly to the settlement agent of the property transaction for a downpayment
- Enhancements effective immediately– Any enhancements to the program should be effective on the date of enactment and should be in effect for at least 12 months to ensure the greatest economic stimulus
Many housing-related organizations, the Mortgage Bankers Association, the National Association of Realtors, the National Home Builders Association and coalitions such as Fix Housing First have been working diligently to try to convince Congress of the effectiveness of the homebuyer tax credit as well as the need to expand it and extend it. Now we will have to wait and see how Congress is going to react, but time is running out.
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