FHA/HUD Rescinds Tax Credit Monetization

I just received word today from Kimberly Kahl, the Executive Director for the National Association of Exclusive Buyer Agents that HUD has rescinded the monetization of the First Time Homebuyer Tax Credit.

From Kimberly's email today:


"According to contacts with both FHA and HUD, Mortgagee Letter 2009-15, which stated that first-time homebuyers would be allowed to use the tax credit for their downpayment, has been rescinded. On a phone call with FHA, I was told, "The mortgagee letter has been rescinded for the time being.” NAEBA President John Sullivan was told something similar when contacting HUD. Neither FHA nor HUD gave further details. If we hear anything further, we will let you know." --Kimberly Kahl, CAE --NAEBA Executive Director--


So close and yet so far! I hope HUD reconsiders. This was a great idea that could have helped many first time homebuyers.

FHA Close to Monetizing First Time Homebuyer Tax Credit!

In a video news report by Frank Garay and Brian Stevens of ThinkBigWorkSmall.com, they reported the news that HUD is getting close to allowing the monetization of the First Time Homebuyer Tax Credit. In his prepared remarks, Secretary of HUD, Shaun Donovan, cited an estimate by the National Association of Home Builders that this new tax credit will stimulate 160,000 home sales across the nation - 101,000 of which will be first time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first time buyer purchased their home.

When FHA allows the monetization of the new tax credit, this means that HUD will allow FHA-approved lenders, HUD-approved non-profits, as well as state and local governmental entities to "monetize" the tax credit through short term bridge loans. In short, the tax credit can become part of a homebuyers' down payment!

New Code: Home Valuation Compliance Code (HVCC)

The mortgage industry has been buzzing ever since the new Home Valuation Compliance Code (HVCC) went into effect on May 1st 2009. The HVCC is a new policy agreed between Fannie Mae, Freddie Mac to only buy loans that were appraised according to the new code. Brought on by a lawsuit filed by New York State attorney General, Andrew Cuomo, against Washington Mutual, the code created a new entity called Appraisal Management Companies who have the task of keeping appraisers apart from the lenders' production staff (loan originators, mortgage brokers, etc).

In a news article by Diana Olick for CNBC, what appraisers used to earn for conducting appraisals now must be split with the new middlemen "Appraisal Management Companies." Adding to the Coals of Concern, Ms. Olick poses the following troublesome questions:


"Why is it that some of the largest banks in the country are allowed to have partial ownership in the Appraisal Management Companies ?? Isn’t this once again the fox watching the hen house??"

AND...

"If the whole idea is to get the appraisal system out of the banking/lending system, then why is it that First American Corp., still has joint venture appraisal management companies with: JP Morgan Chase (Quantrix), Citigroup (Finiti), Wells Fargo (Rels), making First American one of the largest Appraisal Management Companies in the nation? Oh, and there’s currently a class action lawsuit against Rels, claiming it rigged the appraisal process for Wells Fargo."


While the intent of the new code is well-meaning, the code's underpinnings may prove to be faulty and flawed, at best. Especially, if big banks are allowed to have ownership in these Appraisal Management Companies. It seems counterproductive to the original intent of the code, which is to separate the appraisal process from the lending process. I believe a new can of worms has made its way into the world. When policymakers create new laws without the proper checks and balances, the outcome of uncertainty and backlashes come down as a sobering reality.

In recent times, I have seen policies made with the same good intent that ended up doing more harm than good. For example, when the Distressed Property Law first took effect in Washington State, there were some areas of concern that caused many real estate professionals to become leary of showing distressed properties to buyers, or else they would become at risk of becoming inadvertent "Distressed Home Consultants," subject to a slew of disclosure and tedious contractual requirements prescribed the new law. It will be interesting to see how the mortgage and appraisal industry will adapt as the new HVCC policy becomes a universal reality for all appraisals of 1 to 4 family properties.

What does this all mean for real estate brokers, agents, buyers, and sellers? It means that this new process may likely require more time for escrow and closing in our purchase and sale agreements. The need to put time on our side has now become a paramount consideration for all involved. According to Fannie Mae (see "Scope of Coverage" section Q1), however, this new policy will not affect multifamily properties.

In the wake of this controversial policy, a new service has emerged. The Comp Search and Appraisal Dispute service. One such company claims that it is HVCC compliant and comprises a network of experienced appraisers who are familiar with the areas where properties are located. It's hard to say what changes, good or bad, this code will materialize, but one thing is for sure. If big banks are allowed to have an ownership stake in these Appraisal Management Company, then the point of this code becomes moot.