Bill would extend home buyers' deadline for tax credit
Friday, June 11, 2010
Home buyers hoping to take advantage of a lucrative federal tax credit would get three extra months to complete their purchases under a proposal introduced in the Senate on Thursday.
Senate Majority Leader Harry M. Reid (D-Nev.) co-authored a proposal that would allow those eligible for the tax credit to close on a home by Sept. 30 to give lenders more time to process a crush of applications.
Reid and his co-sponsors hope to attach the measure to a separate bill moving through the Senate that would extend a variety of tax breaks as well as emergency unemployment benefits. But even if senators succeed in attaching the tax-credit initiative, Democrats are still struggling to assemble the votes needed to pass the overall tax bill.
To qualify for the tax credit -- $8,000 for some first-time buyers and $6,500 for certain current homeowners -- buyers must have signed a contract by April 30 and close on the their transactions by June 30.
The National Association of Realtors said many home buyers will not be able to meet the June 30 closing deadline because of the surge in loan volume and delays related to home appraisals and short sales, transactions in which lenders allow struggling homeowners to sell their homes for less than they owe on them.
The association estimates that as many as 180,000 people who signed a contract by April 30 would not be able to meet the current closing deadline, said Lawrence Yun, the group's chief economist. "Under normal market circumstances, most people would have been able to complete a deal in a two-month time span," Yun said.
The industry credits the tax credit, designed to help revive the housing market, with helping juice sales during the start of the critical spring selling season.
While the Senate worked on the tax-credit proposal, the House passed legislation on Thursday aimed at strengthening the Federal Housing Administration, which has provided crucial support to the housing market since the financial crisis erupted.
A key provision of the bill would grant the agency authority to raise the annual fees it charges borrowers who take out FHA-insured loans so that the agency can beef up its cash reserves.
The fee is currently capped at 0.55 percent of the value of the loan. The bill, which passed 406 to 4, would raise the cap to 1.5 percent.
FHA Commissioner David H. Stevens said the agency does not plan on raising rates to the maximum limit if this bill becomes law. Instead, the agency wants to raise the fee for new borrowers from 0.55 to 0.9 percent next year, Stevens said.
The increase would help the FHA raise capital as well as make its fee structure more consistent with that of the private mortgage insurers, which have been crowded out as FHA's market share has exploded.
The FHA's share of new single-family home-purchase loans has surged from 3 percent in 2006 to 30 percent after the mortgage market unraveled and private lenders retreated.
The FHA helped fill the vacuum, enticing lenders back into the market by insuring them against losses. But as the agency's loan volume skyrocketed, its default rate climbed and its financial cushion eroded.
An increase in the annual fees should help rebuild that cushion. As the agency raises those fees, it plans to somewhat lower the upfront fees it charges borrowers.