National Housing Policy

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I saw these questions from Ed DeMarco on Twitter. My answers:

1. Have the M.I.D. apply towards primary residence only (not second homes), and lower from $1,000,000 to $500,000.  Those buying in hopes of a bigger write off will still buy a house, and take the partial benefit – and be in it for the appreciation and to raise a family (make wifey happy).

2.  Have the mortgage interest deduction be in effect for the first ten years of ownership only.  It would encourage borrowers to pay off mortgages in the ten years, and not refinance every year.

3.  Require that only the buyers can pay for mortgage insurance (sellers can pay in full now).

4.  Redirect the disadvantaged folks to subsidized rentals until they aren’t disadvantaged. Only stable, secure, affluent people should buy a house – it’s too late for the rest, unless they drive to the suburbs/outer edge of town.

5.  There are several loan programs available to help the disadvantaged already.  NACA is still around, helping buyers purchase with no down payment and no closing costs (H/T daytrip):

6.  Lower the capital-gains tax for 1-2 years to incentivize those reluctant-but-motivated possible sellers to unload a rental property or two.  Cut federal rate to 10% for the first year (currently 20%), and then back to 15% in the second year.  The crotchety old guys still won’t sell, so there won’t be a flood.  But more inventory = more sales while stabilizing prices.

7.  Keep Fannie/Freddie the way they are for now. If they can keep operating in the black, let’s allow the mortgage industry to enjoy the fluidity. I attended a seminar today on the new loan disclosures coming on October 3rd, and it is clear that Fannie/Freddie will be extremely strict on compliance. It doesn’t mean tougher credit, it means the mortgage industry needs to submit the cleanest loan packages ever – which is good for the taxpayers.

8.  The new compliance crunch will virtually eliminate mortgage brokers – wholesale lenders won’t want to take a chance on them. Yes, we still have room for you over here to be a realtor – there’s only 11,000 of us chasing 3,500 sales each month.

9.  Encourage a private jumbo-MBS market without subsidizing it.  Eventually, a private MBS marketplace could help shift the burden from Fannie/Freddie.

10. Run a tight ship.  We can handle it.

The powers-that-be have made some great moves to get us this far, now bow out gracefully and let free enterprise take care of the rest.

M.I.D. and Tax Credits

From the

According to new estimates compiled by the nonpartisan Joint Committee on Taxation — Congress’ top technical resource on all tax law matters — the mortgage interest deduction is not quite as big a hole in the federal budget as previously estimated.

In fact, it’s significantly lower — $88 billion less in revenue losses are now projected over the next three fiscal years — than the committee estimated early in 2010. That’s big money, even in an era of trillion-dollar deficits. Why the sudden reappraisal of the revenue losses caused by millions of homeowners writing off their mortgage interest?

For starters, there’s less mortgage interest being written off than earlier statistical models had anticipated. Home values are down in many parts of the country, and lower purchase prices and far stricter underwriting mean smaller mortgage amounts. Interest rates have hit half-century record lows, and have remained at or near those floors for much longer than anyone had estimated.

Thirty-year mortgages at 4.5% obviously require much less in monthly interest payments than do similar loans at 5.5% and 6%. Millions of homeowners who had been paying even higher rates than that have refinanced in the last year — the combined effect of which has been to reduce the estimated amounts of interest being written off now and for the next couple of years at least.

For example, the tax committee last January predicted that mortgage interest deduction losses to tax revenues for fiscal 2011 would total close to $120 billion. Now the estimate is $93.8 billion.

These are brain-bending big numbers, but the fact is this: It appears that the revenue-loss costs of this jumbo-sized tax benefit for homeowners will be less than anyone expected. In the politically sensitive world of federal budget deficit reform, every lower loss is a better loss — and one that presumably needs less reform.

The committee’s new projections have also turned up some other intriguing and previously unreported facts about key tax benefits for buyers and owners. For example, although the popular first-time home buyer tax credit programs of 2008 and 2009 that stimulated millions of purchases were net revenue drains for the government during fiscal 2010, they are morphing into revenue-raisers — to the tune of $6.5 billion from 2011 through 2013.

There are two factors at work: The first credit, enacted as part of the 2008 emergency economic stimulus legislation, was for a maximum $7,500 or 10% of the house price. But it was more of an interest-free loan than a typical credit. Under the terms of the program, buyers are required to make annual repayment installments of 62/3% of the credit they claimed over the next 15 years — and they’re beginning to do so.

But it’s not just those 2008 buyers who will be paying higher taxes. The two subsequent home buyer credit programs enacted by Congress — $8,000 for first-time purchasers and $6,500 for repeat buyers — did not require repayments. But both programs came with strict rules that experts believe will add to revenue collected by the Internal Revenue Service during the years 2011 through 2013.

For instance, Congress required that credits claimed under the $8,000 and $6,500 legislation be repaid if the owners do not continually use their house as a principal residence for 36 months after the purchase. Say you took the $8,000 credit on your 2009 federal tax filing, but then decided to sell the house or turn it into a rental investment in 2011. You owe the government $8,000 the day you make that move — and the IRS says it has increasingly sophisticated audit programs to detect such transactions and to sniff out frauds and other rule violations requiring paybacks and even penalties.

Bottom line, by the committee’s estimates: Homeowner tax benefits will still represent large contributors to the federal deficit. But for a variety of reasons, those costs should be smaller — and, in theory, slightly less vulnerable to attack — for the years immediately ahead.

Not So Fast with the Cheese

Hat tip to SM for sending in this from

Nearly half of all Americans who claimed the first-time homebuyer tax credit on their 2009 tax returns will have to repay the government.

According to a report from the Inspector General for Tax Administration, released to the public Thursday, about 950,000 of the nearly 1.8 million Americans who claimed the tax credit on their 2009 tax returns will have to return the money.

The confusion comes because homebuyers were eligible for two different credits, depending on when their homes were purchased.

Those who bought properties during 2008 were to deduct, dollar for dollar, up to 10% of the home’s purchase price or $7,500, whichever was less. The catch: The money was a no-interest loan that had to be repaid within 15 years.

Had they waited to buy until 2009, they could have gotten a much sweeter deal. Congress extended the credit and made it a refund rather than a loan.


More Cheese-Time Please

From the WSJ:

The real-estate lobby wants Congress to extend the amount of time that potential home buyers have to complete transactions that qualify for the $8,000 federal home-buyer tax credit.

To qualify for the tax credit, buyers had to sign purchase agreements by April 30.  Those buyers have until the end of June to close on those sales, and anything that closes after that wouldn’t get the tax credit.

The problem, says the National Association of Realtors, is that many of those signed contracts are on foreclosures and short sales, where the lender allows the house to sell for less than the amount owed to the bank. Those transactions take longer than normal to process, and there’s some concern that many sales may not actually close in time.

“There could be a sizable number of home buyers who responded to tax credit incentives, but may encounter problems,” said Lawrence Yun, the trade group’s chief economist, in Wednesday’s report that showed a 6% surge in pending home sales during April.

The NAR and its members are asking Congress for flexibility with the June 30 deadline, but it is unclear when—or even if—something would happen. (The National Association of Home Builders says it is not asking for a deadline tweak.) Congress would have to pass such a measure quickly, which is no easy task. One possibility would be to attach the extension to a piece of legislation that’s already winding its way through both chambers.

Last week, Congress went into the Memorial Day recess without completing a bill to authorize new funding for the USDA’s rural development loan program, which lets some home buyers tap 100% financing.  Without a last-minute reprieve, all would-be buyers can do is push for the different parties to close the deal in time.

State Tax-Credit Update

As of Estimated Total First-Time Buyer Applications Received 57% of Estimated Requested Credit
05/04/10 430 $ 2,351,000
05/11/10 2,470 $ 13,283,000
05/18/10 4,830 $ 25,473,000
05/25/10 7,330 $ 38,357,000

CA State Tax-Credit Update

The $100 million in tax-credit money is holding up OK. If every applicant got the full $10,000, we’re about a quarter of the way done, after nine business days:

Applications for First-Time Buyer Credit received as of 5/13/2010:

As Of # of Applications 57% of the Estimated Credit Request

Cheese Left After 2 Days

The State of California’s tax credit amount is 5% of the sales price, or $10,000, whichever is less. 

Because the state thinks that not every buyer will qualify for the entire $10,000, they are only reducing the tally of available money by $5,700 per applicant, and will figure it out later.  There will likely be some angry applicants at the end:

From the State of California:

The figures shown below are only estimates, based on small samples. The numbers are overstated as there will be duplicate, revised, and invalid applications included as we have not verified any of the applications. These estimates are only provided to give a general idea of the number of applications received and the amount requested for the First-Time Buyer Credit. We are showing 57% of the estimated requested credit since the $100 million cap will only be reduced by 57% of the credit allocated to the buyer. The amounts do not reflect actual amounts which will be allocated. These estimates will be updated each Thursday until we are sure that we have received more than enough applications to allocate the full $100 million. Once we determine that we have received sufficient applications to allocate the full $100 million, we will stop accepting applications for the First-Time Buyer Credit. Estimates for the New Home Credit will be provided once our computer system is completed.

Applications for received as of 05/04/10:  427

57% of Estimated Requested Credit: $2,350,708

Tax Credit Push – Last 2 Weeks

Here’s a larger set of weekly pendings, hoping to quantify the impact of the state housing tax credit on detached sales in San Diego County. 

Number of New Detached Pendings

April SD Co. ’09/’10 NSDCC ’09/’10

After enjoying a 39% increase in sales, year-to-date (wasn’t it 44% the other day?) the North SD County Coastal pendings actually tapered off the last couple of weeks, once you subtract for expected fall-outs. 

The late push during the last two weeks to secure a binding contract before the finish of the federal tax credit might result in an extra 100-150 sales county-wide, at best.  It could end up being much less.

The overall impact on county sales from the tax credit?  Let’s compare year-over-year the pendings between Jan 1st and April 30th.

2009 = 7,827 all closed

2010 = 8,009 (4,472 closed, 3,537 pendings)

There were 1,415 of the 3,537 marked pending since April 15th, and still in their 17-day contingency period. If a third of those fall out of escrow (467), we’d be behind last year’s total sales.  If we see half of the 2,536 contingent listings close, it would get us up to 8,810 closings, a mere 13% improvment in sales from 2009.  You could say the tax credit didn’t help much.

California Homebuyer Tax Credit

Many realtors practice the “win-lose” way.  They’ll stand in the way of creating a win-win solution so all parties are satisfied, and instead bury the other party every chance they get. 

Take the dishwasher story for example.  I mentioned earlier about the listing agent who went berserk over our request for a new dishwasher, which, of course, was then denied by the sellers.  They did agree to a couple of repair requests, but cut corners on those and then said if you don’t like it too bad.  Then once it closed, the agent wouldn’t meet me to hand over the keys, and I had to get a locksmith to gain entry.  There was no remorse.

It’s those types of agents that don’t get i,t about this being a cooperative business. 

Don’t be surprised if we hear some stories about the new California Homebuyer Tax Credit form not being completed in a timely fashion.  According to the instructions, the sellers have 14 days to complete the tax-credit form (including their social security numbers), and return to the buyers.  The knucklehead agents who delay the return of the form are going to cost some buyers their tax credit, and $10,000.

Here are the links:



My guess is May 27th as to how soon the $100 million will be used.  Beginning May 6th, they are going to have a countdown clock too! 

Here are other facts from the ‘instructions’ link:

The total amount of allocated tax credit for all taxpayers may not exceed $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit. However, since many taxpayers will not be able to utilize the entire tax credit, the legislation specifies that the $100 million cap for the New Home Credit will be reduced by 70 percent of the tax credit allocated to each buyer and the $100 million cap for the First-Time Buyer Credit will be reduced by 57 percent of the tax credit allocated to each buyer. For example, if a taxpayer is allocated $10,000 for the New Home Credit, the $100 million cap for the New Home Credit will only be reduced by $7,000. If a taxpayer is allocated $10,000 for the First-Time Buyer Credit, the $100 million cap for the First-Time Buyer Credit will only be reduced by $5,700. The 70 and 57 percent reductions do not impact the amount that can be claimed by the taxpayer.

We will allocate the tax credits on a first-come, first-served basis.  We expect it to take 3-6 months to notify taxpayers after an application or reservation is received. We need to develop a computer system to capture, verify, reserve or allocate, issue letters, and track the credits. Please be patient and do not fax an application more than once. Since the First-Time Buyer Credit is expected to be used up very quickly, we will provide estimates, based on sampling, of the number of First-Time Buyer applications and the related credit amounts that we have received beginning May 6, 2010.  This will allow First-Time Buyers to estimate whether they will be able to apply for the credit and allow us to determine when we have received enough applications to fully allocate the $100 million and stop accepting First-Time Buyer applications. Since the New Home Credit is not expected to be used up as quickly, we will wait until approximately mid-July after our computer system is available to post information about the New Home Credit usage. (Updated 04/28/10)

Only one tax credit is allowed per taxpayer. If a taxpayer qualifies for both tax credits, the law specifies that we will allocate the amount under the New Home Credit.

Last Day of Fed Cheese

To qualify for the $8,000 federal tax credit, buyers have to secure a “binding” contract by the end of today, and close escrow prior to June 30th. 

Has there been a mad rush over the last week to lock down a contract?  Yes, buyers are looking feverishly, but it doesn’t look like many are buying just because of the tax credit – it still has to be the right house.

Here are the numbers of detached listings that have been marked pending over the first four days of this week, compared to all five days of last week – we’ll check back next week to see how many were marked pending, dated today (or backdated over the weekend):

Last Week
This Week

In the end, both the federal and state tax credit will be bonus money for buyers who happened to be in the right place, at the right time.

There has been a real push to extend escrows that were originally planned to close in April, into May to be eligble for the state tax credit too.  In a couple of weeks we’ll look back and see how the first-week-of-May closings compared to last year, but it’ll be hard to determine how many closed just because of the state tax credit – because in North SD County Coastal the detached sales have been much stronger this year overall:

SOLDS 1/1-4/23 NSDCC $$/sf SD Co. $$/sf

A 44% increase in North SD County Coastal detached sales, year-over-year!


Let’s keep a running tally of new pendings/contingents up to April 30th, to see if there is a last-minute surge to buy before the housing-tax-credit deadline.

Detached listings:

Listing Status All SD NSDCC
ACT 6,610 1,396
PEND 3,901 425
CONT 2,557 157
SOLD, Last 30 days 1,636/$252psf 221/$376psf
SOLD, Last 60 3,433/$248psf 417/$383psf
SOLD, last 90 4,782/$245psf 555/$383psf

A pricing convergence; the all-county trend is upward, while north coastal pricing is coming down. The Active-to-Pending/Cont ratio is cooking in both; 1.02 in the county, and 2.40 in north coastal.

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