Tax Credit as a down payment part 5...FHA Get's a Clue

The way the roll out of how HUD was going to allow the use of the tax credit as a down payment prompted me to joke that Gilligan was going to be the next Secretary of HUD and The Skipper would be put at the helm of FHA. While I still maintain that HUD is a dysfunctional bureaucracy it is refreshing to see that someone(s) in there realized that a free for all use of these funds was not a good idea.

Here's the link to HUD's website, read the mortgagee letter for yourself, you will see that this alleged final version is quite a distance from Sec. Donavan's announcement to the NAR a couple of weeks ago; http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-15ml.doc .

News media and other bloggers, me included, are all over this announcement. I want to thank Dan Allen ( http://theallenteam.yourkwagent.com/ ) at Keller Williams Mid Willamette for the tip early Friday morning on this.

The one thing that everyone needs to know is that the borrower will still need to come to the table with the minimum 3.5% down. This credit cannot be used to get a borrower to 100% financing, oh thank goodness. There are a specific set of conditions that need to be followed in connection with this credit. In order to make these funds available at the close of escrow the tax credit has to be monetized. So the borrower will need to take out a second lien or "sell" their tax credit in order to use the funds.

So who is going to carry the second lien? Who can a borrower sell their credit to to get at this money? Good questions, that don't have answers yet, these are certainly not addressed in the mortgagee letter. All the policy announcement states are the conditions under which it can be done. It's these two questions that will determine how long it will be before this is actually implemented by lenders...my guess, 4 to 6 weeks before lenders get this all figured out.

One other item to note. Just because this policy is out doesn't mean every non profit, governmental agency or lender has to participate. And, although 17 states have or are working on implementing this doesn't mean the other 33 states will. Neighborhood Housing entities run by municipalities and established non profits will be the only source of accurate information on this that I would rely on. For now, watch for the scammers there is plenty of money to be made off of people that won't understand what this policy is all about. The usual suspects in my market area ( LOs that have already marketed this, you know who you are ) are making this sound like it needs to be done today. As in Part 1 of this series, I say wait for it. You won't be disappointed.