The Welfare Mentality of the First Time Homebuyer's Tax Credit

By
Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

 

Tough times in America

There has been a lot of buzz about extending the First Time Homebuyers Tax Credit. Why?  For two reasons...

  1. Because the $8,000 Tax Credit expires on November 30th, 2009.
  2. And because many have stated that these tax credits have stimulated the housing market and our economy.

 

We have heard mention of recession, great depression, inflation, economic default, hard times, etc, etc. Has the First Time Homebuyers Tax Credit helped the economy and the housing market? Yes, in some cases. But people, it's another gov't band aide.

 

 

 

printing money - the stimulus package

 

In regards to the tax credit, many have argued that it has gotten them more clients that would have never bought. My thought?  Home buying can be an emotional process. It can also lead to misinformation on why one might buy. I am a frim believer that people will buy anyhow. Did it get some off the fence?  Sure it did. Keep in mind, many real estate markets are different from each other.

But let me pose a question to everyone out there. Where do you think this money is coming from? Who do you think will be paying for this? Is our society a welfare mentality, just printing money that we don't have?  Should we run our Country like a business or as a soup kitchen?  Brian Brady added to my thought process with this eye opening post. Suspend the practice of flesh devouring : let the tax credit expire.

 

 

 

 

You can’t have your CAKE and EAT it too..

 

can't have your cake and eat it

What inspired me to write this post, was after reading the comments on Loreena Yeo's blog, Would Congress please extend the $8,000 tax credit.

People, let's be honest with ourselves. Are we also scared if the tax credit is not extended, that it could also hurt our commissions?  Just think about this. But what caught my attention were many of the comments on Loreena's post that said, "Please extend the tax credit", yet most of them didn't state why. And if they did, they said because it's helping the housing market. Based on whose facts?  Yes, this can be debated.

But what about this... many of these same realtors wanting to extend the tax credit, were the same ones that said one of two things... 

  1. You should have skin in the game (by Lenn Harley) or

  2. knocked the seller funded downpayment program, such as Nehemiah or AmeriDream

Shouldn't these same arguments be applied to the tax credit then, for those that are able to use the tax credit at closing?  Let me explain further....

 

 

 

Economic Recovery

So how do we get out of this mess and and have an Economic Recovery, which the real estate market is a big part of.

How about starting with unemployment.  Loreena argued that buying houses creates 100's of jobs, specific products would be bought.  I agree and disagree. Because you will also lose jobs in the process.

But let me get to my point. Shouldn't we find ways to a recovery that wouldn't cost the tax payers money?  I also read in many of the comments that the tax credit helps increase multiple offers in many areas, driving up the price of the home. Will many of you agree with this?

So prices have increased. Is this a ghost price?  A real price?  An inflationary price? If we accept this, why not bring back the seller funded down payment programs then? Known as the DPA programs.

 

 

 

 

Conclusion :  The argument on Capital Hill and amongst many realtors and loan officers has been that you need skin in the game. And then the next wave would argue against the DPA program, because it could inflate the price of the home. But we have established that the tax credit does the same. But wait, it is costing us tax payers money for the tax credit, yet the DPA program doesn't cost the tax payer any monies.

Overall, aren't we a powerful country?  With some of the smartest individuals, yet we are way in over our heads. What happened to common sense?  Are we just mere puppets of a gov't that says they know best for us?  Is our society a welfare mentality, just printing money that we don't have?  I thought I found some common sense solutions that I wrote about in June 2009. Call to Action - We must fix the real estate market ourselves.  Keeping in mind, that all of this is of my opinion, but with careful thinking and not of that of my pockets.

 

 

 

For other view points on this topic, please read :

  • The Press is On : By Lane Bailey -  I think this is a very good read and we should pay attention to this. He talks about stopping the tax credit.
  • We are going 35 mph, and about to hit the wall. - By Alan May - His complaint is that many people are rushing to take advantage of the tax credit. And that lenders with their delays will hurt buyers chances. Hey, I love helping first time homebuyers, but the tax credit has been around since 2008. If buyers waited last minute, do we keep extending, yet costing us millions of dollars in the future. What about inflation?  Inflation vs deflation - Is it criminal?

 

 

 

 

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For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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  1. William Staney 09/23/2009 07:53 AM
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Anonymous
Marilyn Mennetti

I am for the tax credit and I know it has made a difference and helped people. I don't know the price of housing where some of you guys are but here in Michigan first time buyers can buy a home in a nice area for well under $100,000. We have sold homes to single moms that never thought they could live a a safe area and have their kids in a good school. They can replace their "safety net" in the bank and have the money for the home.

You guys need to remember these "welfare receipients"  you call them HAVE JOBS, GOOD CREDIT AND MONEY IN THE BANK!!! Do I sense a feeling that people that aren't in the UPPER income levels are beneath you? Remember there are lots of worker bees in this country that are really good people, contributing to this country and making less than $30,000 per year. I suggest you get out of your ivory tower and talk to the people that fix your car, clean your house and serve your food!!!!!!!

Remember those of you that are talking this down have your name out there for all to read. I would rather see everyday people get a break and not see the millions of dollars in bonus going to the people that brought this country to their knees. The people taking advantage of this program had no part it that. 

Sep 18, 2009 06:01 AM #60
Rainmaker
197,002
Monica Hess
Feng Shui This Kentucky - Lexington, KY
Kentucky's Feng Shui Master

Years ago Ronald Reagan said something about what we don't want to hear.  If I remember correctly, "I'm from the government and I'm here to help."  

Don't believe that government assistance is any help.  The bigger the government, the more they waste of our tax dollars, and the deeper we all go into debt for it.  What government help does is piss away whatever money they take from us, then go into debt so they can take away the money of our children and grandchildren.

The money they give away comes from somewhere.  Lets face it.  Each of us could do a better job helping others... IF we weren't paying so much in taxes.  But, then our government officals wouldn't have the power they love to wield over us all.  Just remember that Sugardaddys like Uncle Sam ask a price.  Government money always has a string attached, and it's tied around the taxpayer's neck.

Sep 18, 2009 06:35 AM #61
Rainmaker
67,614
Ted Canto
Amerifirst Financial, Inc - Phoenix, AZ
Arizonan #1 Mortgage Lender

Jeff,

Your missed the point of the graph.  You can debate with me about this but the numbers are there.  Historically, FHA has been there to help us get out of every bad turn in our economy's history. That is fact that has been recorded and it is not of my own making or opinion.  Without it, I will go as far as guaranteeing you that our economy (through and through) would have not expanded in the necessary fashion without FHA.  Again, to suggest that "LET THE MARKET WORK ITSELF OUT" mantra is Peter Pan behavior.  "I BELIEVE, I BELIEVE!!".  That thought process led to policies that de-regulated everything to a point of ruin.

By the way, I can come across as a wise ass time to time but I didn't mean it that way at all.  I feel that there are a lot of facets to consider which people are not aware of such as the data I presented. 

As for the your "test" of my knowledge. First, keep in mind that post was a while ago and we actually did indeed at the time originate loans at 580. However, what I will say is that per guidelines (since that is what you are asking), there are no such thing as FICO requirements in the FHA 4155.1.  In fact, the FICO score requirement has had restrictions/ limitations due to "LENDER" requirements.  As to the reason why I out 580 at that time, was specifically due to the fact that no one at the time, was originating any loans with a score of less than 620.  We were one of the very dew lenders nationally.  

However, I did learn something from this reply, "I need to ensure my blogs are constantly updated". You are correct, less than 620 does not exist in this market due to the lenders.  

As for the expert title, I consider that to be one is not only to be able to know the program (although very important and knowing how to structure the deal since FHA is all about the details and not the application itself) but rather have a grasp on why it does "help", how it helps, and importantly how it can benefit the market as well.  This allows me to bring that much more value to my clients and my REALTORS.  This is historically important because then, we understand where we have been and where we are going. Without FHA, you nor I and the REALTORS in this post would likely be working corporate (I shudder at that idea).

Thank you for the provocative post and God Bless!

Sep 18, 2009 07:38 AM #62
Rainer
295,550
Stephen Kappre
KW Hometown - Mantua, NJ
Helping You Home

Wow what a conversation!!!! Who can write loans when they have to talk this much?? Ted, I write less than 620 all day long. But that is for another day. You can read my blogs about it.

Sep 18, 2009 09:33 AM #63
Rainmaker
67,614
Ted Canto
Amerifirst Financial, Inc - Phoenix, AZ
Arizonan #1 Mortgage Lender

I can tell you who!  Me!  I don't take loan applications.  I work on marketing.  I have a team of 6 loan officers that do it thus the concept of "The Canto Team".  That is fabulous that you still can. Good for you for doing those.  Personally,  I haven't lost much sleep over that nor business but I understand that some LO's markets are still accepting them.  We made a good call to not do them anymore.

Sep 18, 2009 09:55 AM #64
Rainmaker
1,560,731
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

I could save my clients this, and sometimes more.  NOT all the time, due to negotiation . . . but on average I save my clients $5,000.  What I'm now seeing, now that buyers are out (maybe before the fall / winter sets in) is that listing agents are using the $8000 credit to negotiate sellers' terms and conditions (hence my wonderful "featured" blog).  And out the window goes the money I would normally save my clients . . . anyway.  The $8,000 credit is an interesting bone / carrot to dangle.  A savvy buyer will understand how a GOOD AGENT will save them money  with / or without the credit . . . and it WILL go away. 

Sep 18, 2009 09:57 AM #65
Rainmaker
225,558
Tim Bradford
Cleveland, OH
NMLS 250013

Jeff,  You stated

", the 100% won't happen, because congress shot it down the after the House passed it. This was like 5 years ago? Secondly, HUD got greedy and whispered in congress's ear about killing the seller-funded DPA, because HUD wanted their cake and to eat it also"

 I thought HUD had tried for years to eliminate Seller Funded DPA and because of Law Suits and PR campaigns HUD was unable to stop a them. 

"Many talk about how prices were inflated because of those DPA's, yet can't the same be said for the tax credit?  Because of multiple offers, it has driven up costs...."

I do agree that more buyers having the ability to buy homes would buy homes would increase Sales Prices.   That is Supply and Demand economics.   I agree, With Seller Funded DPA demand was increased, Sellers also dealt with a Net Price they desired and sales prices were adjusted upwards which did inflate sales prices.  This I believe created a spiral upward in prices.  Yes, the Tax Credits did get some people off the fence and that would cause sales prices to increase possibly.  Again Supply and Demand economics would determine that.   The question then becomes, should government actions, incentives or policies be used to change the Supply or Demand. 

"In regards to not supporting the DPA's because of the fees?"

My statement was meant to say that the DPA organizations were doing it for that reason, simply.   If you grasp my statement that sellers look at a desired Net Proceeds and when DPA programs were used the prices were increased (aka inflated) to cover the seller Funded assistance and the Fees.   I would have no problem if Simple Supply and Demand were the controlling factors.  Bringing more buyers to the market increase sales prices and inflating prices market prices thru the use of DPA Progams doubled the effect.  Bringing DPA programs back would then takes us back to this unhealthy mix.  Possibly not, because of the new rules used by appraisers, however once started, the spiraling could start again.     

Back to my suggestion.  Do you believe anything should be done to assist the current real estate market?   If you say NO, then end of subject.  If you believe something should be done then the question is what.  Your options are:

1)   Bring back DPA programs that would bring more buyers to the market place but at the same time Inflate sales prices. 

2)  Allow 100% or the $100.00 Down on a temporary basis using whatever rules permit HUD to use it on HUD Owned properties.  If not authorized under current guidelines, then instead of extending or changing the current incentive.  Either might require congressional action.  I do not support giving money to buyers on a nationwide basis.  I would support State, City or Regional incentives based upon individual market conditions to use these giveaways; however with a Zero down option these might not even be necessary.

Sep 18, 2009 02:06 PM #66
Rainmaker
354,853
Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

Tim, I believe that your solution it the only solution that would actually be feasible to kick start this economy.  In our area USDA loans are our top loan now simply due to the 0 down payment and the no PMI. 

There is no use in arguing with the people who think that the tax credit needs to be expanded.  These are the same people who want socialized medicine, that want to tax the rich and give to the poor.  The more socialized our nation has become over the last 50 years the further we have slid down the slipper slope of self destruction.

Sep 18, 2009 03:53 PM #67
Rainmaker
131,417
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

Great points Jeff and to all the comments that are anti keep the credit going.  Keep the government out of it.  I assume you people are also wanting to eliminate the home mortgage interest deduction.  That would raise a lot of revenue and help reduce the debt and deficet in the future.

P.S.  I'm a real estate and mortgage broker.  I think the credit should be extended.

Sep 18, 2009 04:22 PM #68
Rainmaker
199,590
Mark Velasco
Sharpstone Realty, Inc - Whittier, CA
Listing Agent-Whittier & Surrounding ciities

Very true Jeff. After all is said and done...there will be a price to pay. The price will be paid in more debt and taxes.

Sep 18, 2009 05:42 PM #69
Rainer
74,745
John J. Woods
Big Dog Press, LLC - Winder, GA
Going where no man has gone before - wouldn't you?
Couldn't agree more with all you said in your post. The welfare mentality is getting entirely out of hand. Thanks for the time you obviously put into this, and the reference links.
Sep 18, 2009 07:34 PM #70
Rainmaker
225,558
Tim Bradford
Cleveland, OH
NMLS 250013

Damon,   Thanks for pointing out the 100% Financing option with USDA.  I believe the objection that most people have to 100% financing came past experience.   I also believe that a number of other factors playing into the problem.   Those being Stated Income Loans, very liberal credit underwriting and questionable appraisals.   All of these contributed to where we are today.  I believe tightening in each of those areas have occurred therefore we are in a different place today.   I look at these items as a deadly mix.

I also believe the $8,000 did offer some stability to the market, however as the incentive was a hand out to those that really did not need it and is something every tax payer will be paying for years to come.  If it had been written like the original $7,500 that called for repayment I might have supported it because then it was just a loan. 

For those that stand by "Skin in the Game", with the decline in property values overall, even some people that put 10% or 20% now find they are underwater.  I believe the two most important factors with any loan are "Ability to Pay" and "willingness to pay".  Ability will be controlled by our economy in general and jobs.  Willingness is a mentality and the more free money that is given to people the weaker this gets. 

Will close saying, I believe something needs to be done when the $8,000 expires.  The question is what and I do not believe the Seller Funded DPA programs are not the solution for the reasons I have expressed. 

Sep 19, 2009 12:29 AM #71
Rainer
41,131
Patrick Randles
Nova Home Loans - Tucson, AZ

Jeff,

Let the markets run their course is my belief. If a small business can't take in more than it spends, it closes and a government that is broke should not give away $11.2 billion dollars as an incentive to purchase a home. Prices, rates, tax deductions, home appreciation (in theory) and the pride in being an owner should drive the market, IMO.

Patrick

Sep 19, 2009 02:12 AM #72
Rainer
118,327
Ginger Moore
Wilkinson & Associates Realty - Gastonia, NC

Hi Jeff, You do write great contorversial posts!  I love reading them, so keep it up.  Yes, I agree,  in the long run it will produce more debt and taxes.  Great feedback here. congrats on feature post!

Sep 19, 2009 02:51 AM #73
Rainmaker
97,545
Kathie Burby
Coldwell Banker Mother Lode Real Estate - Sonora, CA
REALTOR, SFR, Tuolumne County Real Estate Guide

Great post and comments! I think the 1st time homebuyer tax credit should be allowed to expire. It has created a false market that cannot be sustained and extending this credit will only prolong the housing recovery. Put the "Free" back in market and let the markets work it out.

Sep 19, 2009 09:19 AM #74
Rainmaker
67,614
Ted Canto
Amerifirst Financial, Inc - Phoenix, AZ
Arizonan #1 Mortgage Lender
Patrick and Kathie.. You didn't read other previous posts. The Real Estate market has NEVER WORKED itself out alone. It is not that simple as you are led to believe. There is data to prove this. That statement is so cliche and packs no backbone. What aggravates me most is the short attention span and ingratuitous attitude we have as an industry in general. 2 years ago I read hundreds of posts of agents in dire straits and still I speak to some that are still struggling. I am sure not one of us would like to be put in the same place as 2 yrs ago again. I will likely have some people reply with.. ' I didn't hany problems'! LIES! I will put myself on the line to say 70 percent were in a bad place. I am really tired of the idea that we are all above this mess as an industry. There is no 'Let the market work itself' since we all collectively worked together to its demise. I remember clearly and blatantly Agents running prices up with bidding wars, purchases with site unseen, etc and lenders, title companies, appraisers and the whole lot doing insane stuff. The market sure did work on itself then. How in the heck you expect that same market to dig itself out now?
Sep 19, 2009 10:09 AM #75
Rainmaker
1,551,465
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Ted, chill out and write your own post with your own views.  Thanks for staying civil I guess.

Jeff:  I still have not had a buyer tell me that they are buying because of the tax credit so what's the hub-bub?  It doesn't seem to be making a difference to them.  I did a post recently and I believe that the buyers that are now 'hurrying up' to take advantage of the 'Sham-wow' offer are the same people that XMas shop on December 23rd.

 

Sep 22, 2009 02:21 AM #76
Rainer
288,479
Thomas McCombs
Century 21 HomeStar - Akron, OH

I just love it when posters talk about "government expenditures" when they refer to tax saving activities. They seem to feel that letting me keep my own money is actually a government expense. Taken to the extreme, this means that all money belongs to the government, and therefore that any money I have is a gift (Handout) by the govenment.  Phooey!

And talk about the federal deficit has always been a non starter with voters. They just can not get excited about reducing the deficit if it means cutting back on a favorite program.  And anyway, who do we owe the money to?  It's either to ourselves (think government bonds and bills bought by us citizens to fund our retirement) or to overseas investors (and who cares if we default on debts to them!  -- not really, but you get the idea).

I believe the $8000 tax credit has been a big help even if there have not been all that many who have taken advantage of it. It has provided a big psychological boost. I vote for extending it.

"This is a great time to buy a house"

Akron, Ohio

 

Oct 16, 2009 11:09 AM #77
Rainer
288,479
Thomas McCombs
Century 21 HomeStar - Akron, OH

What was this post #77 about?  Yikes!

Ted: You (post #75 and earlier) have done some excellent thinking here.  Stay with it.

Akron, Ohio

 

Oct 16, 2009 11:18 AM #78
Rainer
21,753
Kevin Cottrell
Austin Real Estate Today - Austin, TX

Agree with notes above.  Whether we like it or now - FHA will lead us to recovery and is a necessity for a real estate recovery in 2010 and moving forward.

Jan 19, 2010 11:05 PM #79
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