$15,000 Homebuyer Credit Cut in Compromise
A proposal to provide a $15,000 tax credit to homebuyers was stripped from a $789 billion economic stimulus package that appears headed for a vote Friday, but a restoration of higher loan limits for Fannie Mae, Freddie Mac and FHA loan guarantee programs appears to have made the cut.
The $15,000 homebuyer tax credit -- included in an $838 billion economic stimulus bill passed by the Senate Tuesday -- was scaled back to $8,000 and limited to first-time homebuyers as part of a compromise between Democrats and Republicans.
The Congressional Budget Office estimated the larger tax credit would have cost $35.5 billion, a price tag that proved too tough to swallow in conference committee negotiations where differences between House and Senate versions of H.R. 1, The American Recovery and Reinvestment Act of 2009 were ironed out.
Instead, the compromise bill falls back on language approved by the House Jan. 28, which would have eliminated the repayment requirement on an existing $7,500 tax credit that is currently available only to first-time homebuyers through July 1.
According to a summary of the compromise bill released by lawmakers Thursday, the tax credit will still be available only to first-time homebuyers -- those who haven't owned a principal residence in the last three years. But they won't have to pay it back, as is currently the case, and the credit will be increased to $8,000 and be available through the end of November. The smaller tax break will cost taxpayers closer to $6.6 billion over 10 years, a savings of nearly $30 billion.
The compromise version of H.R. 1 would nevertheless increase the statutory limit on the public debt by $789 billion, raising it from $11.3 trillion to $12.1 trillion.
While not everything that the industry was hoping for, the National Association of Realtors nevertheless welcomed the more limited expansion of the tax credit.
Eliminating the repayment provision on the first-time homebuyer tax credit could drive more than 200,000 additional home sales, NAR President Charles McMillan said in a statement, which will help stabilize home values. The National Association of Home Builders had estimated a $15,000 tax break for all homebuyers would have generated nearly 500,000 home sales.
McMillan said the compromise bill will also reinstate the $729,750 loan limit in high-cost areas for Fannie Mae, Freddie Mac and FHA loan guarantee programs that was in place throughout much of 2008, which he said would help reduce inventory and improve liquidity in the overall mortgage market.
In a separate development, investors were cheered Thursday by a report that the Obama administration is planning to launch a program to subsidize mortgage payments for troubled borrowers who can pass a standardized re-appraisal and affordability test. A Reuters report on the Obama administration's foreclosure prevention plan helped stocks recover much of their losses for the day before Thursday's closing bell.
The foreclosure prevention plan is presumably part of a comprehensive housing program that Treasury Secretary Timothy Geithner promised Tuesday the administration would roll out in coming weeks as part of a "TARP 2" financial stability plan for banks.
In announcing the plan, Geithner suggested an expansion of a $600 billion Federal Reserve program to drive down mortgage rates could also be in the works. That program has already driven down mortgage rates to around 5 percent through purchases of mortgage-backed securities and debt issued by Fannie Mae, Freddie Mac and Ginnie Mae.
Reuters reported that the Obama administration has shelved a plan for the government to stand behind low-cost mortgages with rates between 4 percent and 4.5 percent.