Originally Published November 11, 2008
For those who haven’t seen the tax credit that is currently available, a quick review: If you have not owned a house in the last three years, and you make below a pretty hefty threshold you qualify for a $7,500 tax “credit” if you buy a home this year. Well, the tax credit has not done a lick of good in spurring on a buying spree of homes this year. Somehow a $7,500 credit isn’t appealing to people when they realize that actually, it isn’t a credit at all, but rather a loan. Well, there may be some changes on the horizon to the credit.
It was reported this morning that the National Association of Home Builders Association is lobbying for changes in the tax credit. The argument is that the credit has not had the intended effect, and thus needs to be improved until it has the effect needed.
I wrote earlier this year about the credit / loan program and stated that it is a poorly presented program, but no matter how you look at it, it is a great deal, and buyers should want to be a part of the loan. That doesn’t mean that I think the loan is enough reason to buy a home, but if you are going to buy a home, you should not snub the opportunity for some free cash.
But here come the lobbyists and the new proposal. Gone would be the first time home buyer provision, gone would be the repayment plan, and gone would be the $7,500 limit. In its place would be a 10% credit up to $22,500 with no repayment at all.
So lets get this straight: Since the lenders are no longer willing or able to lend to 100%, let’s let the IRS be responsible for ensuring that buyers who have no ability to save for a down payment still get the 10% the banks want to see.
Instead, lets take the money that would cost and provide some real relief that would end the foreclosure crisis. That alone would take homes off the market and thus bring inventory levels into line, and thus stabilize the prices, and entice non-homeowners to jump back into the market.
JP Morgan and Chase have both announced plans to try and do this WITHOUT government intervention. They understand what is really driving the crisis, and we’ll see if other banks will follow suit. Why write off bad debt if you can salvage the underlying security? Chase is trying a real tactic of readjusting the payments and keeping people in their homes. JP is simply not going to foreclose on more homes until after the New Year. I hope more banks jump on board, and I hope the government will support them in protecting their actions with guarantees akin to my Davis Plan.