by Dean Hartman on September 9, 2010 ·
A new Home Buyer Tax Credit is unlikely. Interest rates can’t go much lower. So, how can a market where buyers who are afraid of losing their jobs begin to digest the massive quantity of current and shadow inventory without another major correction in pricing? Here are four “outside the box” ideas that deserve consideration:
1. Home SELLER Tax Credit!
With homes as affordable as they have ever been, why are we contemplating giving more to the buyer than low prices, amazing selection and low rates? Seems to me we need a way to help sellers. Whether they are underwater or not, why not incent them with a $8000 tax credit beyond any existing incentives available. For some, it will give them money to “start over”; for others, it will enable them to correct their asking price to get their home sold. In short sale scenarios, their current bank needs to approve the price anyway, so, this money won’t negatively impact home values further. Today, sellers need help more than buyers, let’s help them.
2. Make every mortgage assumable (without recourse).
Let buyers buy with minimal closing costs by assuming the existing mortgage at the existing interest rate. (A WIN for a buyer!) In short sale situations (which are really the only time someone would do this), a new appraisal is done and the loan is reduced to 100% of the value. The bank is likely losing principal, but the existing rate is likely higher than they would get on a new loan. (A WIN for the bank because they have a new, qualified borrower at a higher than market interest rate!) The seller can be released of their liability (without any 1099) and potentially without too severely damaging their credit score. (A WIN for the seller!)
3. Reinstate the Down Payment Assistance Program that has been on hold with FHA.
In essence, with this program the seller funds the down payment for the buyer. Previously, a seller would make a gift to a HUD-approved not-for-profit out of the proceeds of the sale. Said not-for-profit would gift monies to a buyer at the closing table to be used for their down payment (keeping a small administrative fee for themselves). The program was suspended because of higher default rates. Industry experts believe that if we install more stringent guidelines on credit scores, income ratios, and/or required reserves, that default rates will be acceptable. Since accumulating cash is a major hurdle for home buyers today, this idea makes sense, and is even more needed with the proposed reduction of seller’s concessions towards the buyer’s closing costs.
4. Have the Fed Buy Mortgage-Backed Securities for Investment Property Loans with only 20% Down Payments at Competitive Rates.
There aren’t enough first-time homebuyers who are secure in their job situation, and qualify for mortgages to buy all the homes we need sold. And now that prices are so attractive, if we can make mortgage rates more affordable and cash needed to close lower for investors, we can attract more potential purchasers to the table.
In order to stabilize prices (and eventually have appreciation again) we need to decrease supply and increase demand. I believe some of these ideas (which likely can be tweaked for improvement by smarter people than me) provides some solutions. But, I’d love to hear what everyone else thinks.