Mortgage Loan Refinance Guru

UPDATE3: Lawmakers voted 85-2 in favor of sending the homebuyer tax credit extension one step closer to a final vote. Eric Wolff of the NC Times referred to the vote as “a cloture motion” that serves to end the debate on a bill. Several reports indicate that lawmakers could decide whether to extend and expand the first-time homebuyer tax credit sometime this week — possibly even as early as today. However, it’s not a done deal yet:

That’s unlikely to happen if Senate Republicans, unhappy that Democrats are blocking their amendments to the plan, force the chamber through a series of procedural steps before the final vote.

Unfortunately, we won’t know and understand all of the bill’s specifics until it passes (if it passes). What we do know so far is that the legislation, with a new expiration date of April 30, 2010, is striving to assist both first-time as well as “step-up” buyers, and will also allow buyers with higher incomes to participate:

Homebuyers who have lived in their prior residence for at least five years could receive a credit of $6,500. Couples earning as much as $225,000 a year and individuals earning up to $125,000 would qualify. That’s up from the current $75,000 limit for individuals and $150,000 for couples.

The tax credit was enacted as part of an economic stimulus plan in February. More than 1.2 million borrowers have claimed $8.5 billion of the $13.6 billion set aside for the homebuyer tax credits this year, according to the Treasury Department.

The Obama administration has endorsed the extension. The Joint Committee on Taxation estimated the revised homebuyer tax credit would cost $10.8 billion over 10 years.

Check back soon — we’ll keep you posted on the latest developments.

UPDATE2 (published on 10/29/09): There have been several leaks from different legislative sources on the details of what the “new” $8,000 first-time homebuyer tax credit may look like. Judging by the numerous stories we have read about the debate waging on Capitol Hill, the tax credit seems to stand a good chance to be both extended and expanded — not something we originally thought would happen.

Several proposals circulating through Washington call for the tax credit to be offered to both first-time and “step-up” homebuyers — or those who already own properties but are looking to upgrade.

While each draft has included some term of extension, one idea was to extend the program for an entire year, but slowly phase it out through 2010:

The $8,000 tax credit would fall to $6,000 in April, to $4,000 in July and $2,000 next October. It would end entirely on Dec. 31, 2010.

Multiple proposals want to increase the income levels for qualifying individuals and families, up to $300,000.

What About Cost?

Our “Update1″ section of this story (see below) said that one estimate pegged the program had so far reached about $10 billion in tax revenue. According to a Reuters article from yesterday, “Simply extending the current tax credit is estimated to cost $1 billion a month. Isakson’s proposal is slated to cost about $16.7 billion through June.”

Vote?

When lawmakers plan to vote on this issue is still uncertain as it will hing on which bill the tax credit is attached to. While the date of a possible vote is still unclear, what is rather clear is that a lengthy extension and a clause for step-up buyers could likely pass.

It’s A Question of Need

In a previous post we wrote that the National Association of Realtors claimed that the $8,000 first-time homebuyer tax credit was accredited for about of the year’s new home sales. Economist Paul Dales said the impact was closer to 30%. The figure we want to know is, what percentage of borrowers decided to buy a home simply because of the tax credit? That could really help determine just how important this initiative is.

What do you say?

UPDATE1 (published on 10/22/09): One of our readers, Chris, passed along a link to a TIME article from today which provides answers, or at least indications, to some of the questions we had asked in our original post below. While we still don’t know if the tax credit will be extended and/or expanded, we do have a better idea of what this program is costing us, and the scope of the fraud that’s surrounding it (emphasis added):

Treasury Inspector General for Tax Administration J. Russell George told a House panel that more than 19,000 people filed 2008 tax returns claiming the credit for homes they had not yet purchased. Russell said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.

The [IRS] says it has processed claims from more than 1.5 million individuals or families[...]that represented about $10 billion in tax revenue.

At one end, House Majority Leader Steny Hoyer, D-Md., says the program should be extended for a month while lawmakers take another look at how it is being run. On the other end, Sen. Johnny Isakson, R-Ga., with the backing of banking committee chairman Christopher Dodd, D-Conn., wants to extend it through next June 30, and expand it to include all home buyers, at an estimated cost of $16.7 billion.

Back in April, the question of “can I use my homebuyer tax credit as a down payment” created a real stir since mortgage professionals as well as the IRS quickly classified the action as fraud. We’re curious to how much, if any, influence the tax credit used as a down payment has had on the fraud numbers (seen above). We’ll keep you posted.

For more, read:
Update5 The Latest On ‘$8,000 Tax Credit As Downpayment’

Original post published on 10/20/09: According to HUD Secretary Shaun Donovan, a decision of whether or not to extend the $8,000 first-time homebuyer tax credit will be made in the next few weeks:

“And I’m committed–the administration is committed–to getting to that decision within just a couple weeks to make sure that the market doesn’t become interrupted,” [Donovan] added.

The tax credit — which is set to expire November 30 — has recently come under the microscope of the IRS. According to the Wall Street Journal, the IRS is examining some 100,000 “suspicious” claims, suspected to be either “unjustified” or “fraudulent”:

More than a million claims for the credit have been received so far, and housing-industry experts estimated that the credit has helped generate about 350,000 home sales that wouldn’t otherwise have occurred. But some lawmakers and tax experts now say there is evidence that a significant number of the claims might prove to be unjustified, or even fraudulent.

There are several factors which could delay or even end talks of an extension — fraud may just be one of them, cost could be another. Donovan told lawmakers today that the administration will not know the true cost of the first-time homebuyer’s tax credit until tax time:

The administration feels the urgency to make a decision soon but also wants to assess the costs of the tax credit before acting…

Donovan said the costs of the tax credit wouldn’t become clear until people filed their tax returns. That information isn’t easy to gather, he said. However, he implied officials could get hold of enough cost data to decide within the next few weeks on the tax credit.

Donovan told reporters that it was clear the tax credit has helped the housing market. “The real question is at what cost and that’s what we’re trying to get definitive information on,” he said.

With several (and costly) Federal housing programs running simultaneously, if reports (due in the next few weeks) find that the price tag has gone over initial expectations, the tax credit could be ended for good.