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4 Ideas To Spur Home Sales

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.


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4 replies
  1. Nancy Judovits
    Nancy Judovits says:

    Very interesting, Dean. After the last couple of years I really am fiscally NOT a fan of further tax credits. My gut feeling is they did little to push those off the fence that were not going to buy any way. It may have made them buy a few months earlier which set us up for the July pending home sales figures we just saw…but they were going to buy in 2010 any way. They also set up a feeling of animosity toward the buyer on the part of the seller in some cases. I had more than a couple of sellers who could not help but point out that their buyers were getting their house for a great price…which they were…the buyers were getting a seller assist to pay their closing costs…which they were….AND the buyers were getting a tax credit paid ultimately by the seller and all American tax payers as well…which they were…leaving the seller feeling like he ultimately got the short end of the stick. The idea of a tax credit for the seller to help them sell their property at a lower price and fund the buyers’ closing costs through a credit would have “felt” better to them (although if it gave the consequence of adding more homes to our already large inventory that may do more harm than good). At this stage of the game I do not think the country can afford another large scale tax credit. I do not think they entice anyone to do anything they were not going to do anyway. They are just a government hand out and add to an already out of control deficit. The market needs to do what markets do. Hang on everyone…we are still on a very bumpy ride.

    Reply
  2. Dean Hartman
    Dean Hartman says:

    I support any idea that can push homes through the meat grinder. As I have pointed out in other blogs, the government receives substantial income tax revenue when a home sells (from the agent’s commission, the LO commission, and all the ancillary services). $8000 doesn’t really cost the tax payer $8000.

    I also like comps at higher sales prices. :-)

    Not sure if it’s the cure, but I do know we need to do something.

    Reply
  3. Brad - Home Loan Artist
    Brad - Home Loan Artist says:

    I like ideas, but I’m not sure making mortgage rates more affordable (meaning no risk based pricing assinged to investor loans) and requiring less of a down payment for investors is a recipe for success. Where I live, the investors who financed high LTV loans were the ones who played a huge role in the crash where we lost 65% of our home value.

    How about keeping more decent paying jobs in the United States? That might help a little.

    I fully agree with you that seller funded down payment assistance is a great idea. If they had just allowed that over the last 12 months rather than shelling out gazillions of dollars for home buyer tax credits, we could have saved our children from having to repay more of our bad debt when they get older.

    Here’s another idea…..how about allowing those who foreclosed due to a lost job to purchase a new one after they have proven they have secured a new stable job with one year employment history? And then lets have have Fair Isaac lessen the impact of how much they penalize people’s FICO score who have had a foreclosure.

    There are so many ideas on how to stabilize our housing market without spending tax payer dollars it’s scary……but those in Washington love to spend our money.

    Reply
  4. Dean Hartman
    Dean Hartman says:

    Investors who buy cash flow positive properties may be the best answer. Yes, there is some risk; however, it also is the only option that may noy actually cost anything (and could be a PROFIT for the government).

    Would love jobs to stay here, but, that is not an immediate solution with immediate impact.

    Once we start looking massage FICO scores based on circumstance, I believe they lose there value (whici is empirical, impartial probability). That doesn’t mean that I don’t support going back to a time where underwriters can actually interpret causes of delinquencies and use their judgment….but, that is unlikely in this lending climate.

    Reply

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