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

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.

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!

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.

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.

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. 

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.

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.

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.

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.

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.

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. 

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

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!

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.

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?

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.

 

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

 

What was this post #77 about?  Yikes!

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

Akron, Ohio

 

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.