$8,000 First Time Home Buyer Tax Credit Stimulus Package to Extend or Not?

The Quincy Cove is currently running a really good story about how the Decemeber 1st, 2009 $8,000 first time home buyer credit stimulus package is affecting the local Quincy real estate market. Staff writer Simon King has some great commentary about how the Government should proceed as the December 1st deadline is fast approaching.

According to Simon, “Perhaps the solution is a compromise between extending the credit and standing firm with the deadline. The Government could spur home sales the most if they extended the first time home buyer credit with the qualifier that only properties under contract as of December 1st, 2009 would qualify. This would give a substantial reason for all the current short sale buyers to stay with their contracts.”

The Government has in fact already extended the $8,000 first time home buyer credit for American service members. The House vote to extend the program for another year came this morning. The congressional vote was unanimous to introduce the Service Members Home Ownership Tax Act of 2009 that will extend the program for another year.

Who will qualify for the 1 year extension? Military members, Foreign Service members, and intelligence officers who served at least three months of overseas duty in 2009.

Some notable congressional members that supported the bill included U.S. Representative Ed Whitfield. Whitfield was reported saying, “The brave men and women who serve our nation abroad should be given every opportunity to make this dream a reality. The legislation passed today will ensure military members are able to take advantage of the first-time homebuyer tax credit upon returning from their service abroad.”

Several bills have already been drafted that propose to extend the tax credit for everybody. Among some of the supporters include Sen. Johnny Isakson. The Georgia Republican is seeking to have the tax credit increased to $15,000 and to have the tax credit extension applied to all home buyers. The bill, first introduced in June, failed in a 47-to-50 Senate vote last month.

The first time home buyer $8,000 tax credit was designed to help increase home sales. The IRS reported that roughly 1.4 million people took advantage of the program. The next couple weeks will be crucial in deciding if millions of current pending real estate transactions will qualify for the rebate or not.

When the Cove spoke with a local Quincy mortgage processor today about what effect the deadline is having on transactions they responded, “Things are getting very busy. The stack of loans waiting to be underwritten has almost doubled in size. The real problem is that as the properties begin to pile up frustrated home owners and real estate agents begin to get impatient.”

The specific interviewed loan processor wished to remain nameless, but said that it’s now taking over an hour of her day just to answer status updates on why the transaction is taking so long.

The Government needs to find middle ground between stopping the program cold turkey and extending it for another year. There are obviously more foreclosures looming just around the corner if real estate sales decline due to the December 1st deadline.

After interviewing some of the major players at national bank corps (i.e. Bank of America, Chase, Bank of the West, etc…) the consensus is unanimous that if home sales decrease foreclosures will increase. Several of the banks state that the foreclosure process is ready to be completed on thousands of properties. What this means is that many notices of defaults have already been served. Several of the banks are just waiting to see if loan modification/short sale negotiations will be successful.

If banks are unable to work with home owners to find a solution or if a solution does not come quick enough because sales are sluggish more foreclosures will can be expected.

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