June 22nd, 2009:

Just in from the Department of Housing and Urban Development:

DONOVAN ANNOUNCES RECOVERY ACT’S HOMEBUYER TAX CREDIT CAN IMMEDIATELY HELP THOUSANDS OF FIRST-TIME HOMEBUYERS TO BUY A HOME
FHA plan will stimulate new home sales and help stabilize housing market
WASHINGTON – Speaking to the National Association
of Home Builders Spring Board of Directors Meeting, U.S. Housing and
Urban Development Secretary Shaun Donovan today announced that the
Federal Housing Administration (FHA) will allow homebuyers to apply the
Obama Administration’s new $8,000 first-time homebuyer tax credit
toward the purchase costs of a FHA-insured home. Donovan said that
today’s action will help stabilize the nation’s housing market by
stimulating home sales across the country.

The American Recovery and Reinvestment Act of 2009
offers homebuyers a tax credit of up to $8,000 for purchasing their
first home. Families can only access this credit after filing their tax
returns with the IRS. Today’s announcement details FHA’s rules allowing
state Housing Finance Agencies and certain non-profits to ‘monetize” up
to the full amount of the tax credit (depending on the amount of the
mortgage) so that borrowers can immediately apply the funds toward
their down payments. Home buyers using FHA-approved lenders can apply
the tax credit to their down payment in excess of 3.5 percent of
appraised value or their closing costs, which can help achieve a lower
interest rate. To read the FHA’s new mortgagee letter, visit HUD’s website.

“We believe this is a real win for everyone,” said
Donovan. “Today, the Obama Administration is taking another important
step toward accelerating the recovery of the nation’s housing market.
Families will now be able to apply their anticipated tax credit toward
their home purchase right away. At the same time we are putting
safeguards in place to ensure that consumers will be protected from
unscrupulous lenders. What we’re doing today will not only help these
families to purchase their first home but will present an enormous
benefit for communities struggling to deal with an oversupply of
housing.”

Currently, borrowers applying for an FHA-insured
mortgage are required to make a minimum 3.5 percent downpayment on the
purchase of their home. Current law does not permit approved lenders to
monetize the tax credit to meet the required 3.5 percent minimum down
payment, but, under the terms of today’s announcement, lenders can now
monetize the tax credit for use as additional down payment, or for
other closing costs, which can help achieve a lower interest rate.
Buyers financing through state Housing Finance Agencies and certain
non-profits will be able to use the tax credit for their downpayments
via secondary financing provided by the HFA or non-profit. In addition
to the borrower’s own cash investment, FHA allows parents, employers
and other governmental entities to contribute towards the downpayment.
Today’s action permits the first-time homebuyer’s anticipated tax
credit under the Recovery Act to be applied toward the family’s home
purchase right away. Unlike seller-funded down-payment assistance,
which was a vehicle for abuse, this program will allow homebuyers to
shop for the best home price and services using their anticipated tax
credit.

According to estimates by the National Association of
Home Builders, the Administration’s homebuyer 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. Given FHA’s current market share, it’s estimated
that thousands of families will be able to purchase a home by allowing
the anticipated tax credit to be applied toward their purchase together
with an FHA-insured mortgage.

Homebuyers should beware of mortgage scams and
carefully compare benefits and costs when seeking out tax credit
monetization services. Programs will vary from organization to
organization and borrowers should consider whether the services make
sense for them, as well as what company offers the most suitable and
affordable option.

For every FHA borrower who is assisted through the
tax credit program, FHA will collect the name and employer
identification number of the organization providing the service as well
as associated fees and charges. FHA will use this information to track
the business closely and will refer any questionable practices to the
appropriate regulatory agencies, as necessary.

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HUD is the nation’s housing agency committed to
sustaining homeownership; creating affordable housing opportunities for
low-income Americans; and supporting the homeless, elderly, people with
disabilities and people living with AIDS. The Department also promotes
economic and community development and enforces the nation’s fair
housing laws. More information about HUD and its programs is available
on the Internet at www.hud.gov and espanol.hud.gov.