Are you a loan officer reading this blog?

Welcome. Pull up a chair today and feel free to show us your mortgage expertise. Flex your mortgage muscles if you will.

Feel free to advertise right here on this post with your name, contact information, picture – pretty much whatever you want – if you are actually able to help people “monetize” the 8000 tax credit.

Based on the number of times each week that I am asked “hey, do you know anyone who is helping people actually monetize the 8000 tax credit?” you will probably get tons of business.

I have searched and searched for a lender who can help first time home buyers monetize the 8000 tax credit since it was announced that it was possible – with no luck.

I am currently not aware of any lenders in Arizona who are able to help people monetize the 8000 tax credit – and if you know of any please spread the word and have them announce it here so I can help drive business their way!

These are crazy times in the mortgage business.

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Yesterday HUD issued Mortgagee Letter 2009-15 which gave official guidance on how exactly you can turn the 8000 Tax Credit for new home buyers into cash to help you cover your closing costs and possibly part of your down payment.

Home Buyer Tax Credit Monetization: How To Claim The 8000 Tax Credit

While many people have many questions, I decided to cover the most popular ones that I hear.  What people are asking me about the first time home buyer tax credit being used as a down payment:

What Do I Fill Out To Claim The 8000 Tax Credit?

In order to claim your tax credit, you will need to obtain the IRS Form 5404 from the IRS.gov website.

Can You Assign The Tax Credit To Someone Else?

The IRS will only issue the tax credit to the taxpayer, not a third party. You cannot assign the claim for this credit to a third party.

Can You Use The Tax Credit For Your Down Payment?

The hot topic recently is “can I use the tax credit for my down payment?” and the answer to that question is technically yes – but – you cannot use the tax credit to cover the first 3.5% of your down payment, you must come up with that on your own or have it gifted to you from a blood relative.

Once you come up with the initial 3.5% down payment that is required by FHA, if you would like to use the 8000 tax credit to add to that down payment, that is allowed.

Who Will Provide The Bridge Loan / Monetization Of The Tax Credit?

FHA will permit FHA lenders and other approved government organizations or non-profits to issue you a bridge loan in exchange for a second lien on the property.

If I Take This Bridge Loan, Do I Have To Make Payments?

You might, it will depend on who you get the money from.

If payments on the loan are going to be required on the loan before 36 months, then your monthly payment will have to be considered in your debt ratios when qualifying for your first mortgage.

If payments are not required by the lender before 36 months and you decide to just “not pay” by the deadline you agreed on, the loan will convert into a “soft second” mortgage – at which time principal and interest payments will start to be required.

Is It Possible To Get Cash Back At Closing?

No. The tax credit advance, when combined with getting an FHA loan may not result in you getting any “cash back” when buying the home.

How Much Will Using Your Tax Credit For Down Payment Assistance Cost?

Any costs to you from the lender or organization who “purchase” your tax credit are supposed to be “reasonable”. FHA has even went further on this issue – they have said that any amount charged to you over 2.5% of the anticipated credit are considered excessive.

As an example, if you were going to receive a $6,000 refund, after all fees associated with the transaction, it should not cost you more than $5,850.

If You Wish To Use The $8000 Tax Credit For A Down Payment or Closing Costs:

If you are planning on using the 8000 tax credit for part of your down payment or closing costs, be ready for these things to happen when getting your file ready:

1. You will be required to complete the IRS Form 5405
2. The lender will contact your employer and review your pay stubs to confirm there are no outstanding garnishments
3. The lender will ensure that you have no unpaid student loans or other debts that could offset the 8000 tax credit – including IRS debts
4. The lender will have to validate that all requirements to receive the tax credit have been met

Other Resources:

HUD Official Announcement

Official Mortgagee Letter 2009-15

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• Are Any Lenders Doing The 8000 Tax Credit Monetization?
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• 8000 Tax Credit Questions and Answers

You remember the feeling.

Remember back in high school when your teacher announced a pop quiz and you didn’t study the night before because you were hanging out at your friends house watching the A-Team?

You know the feeling and you can describe it in two words. (hint: the first word is “Oh”)

That is how I felt yesterday when I learned about the possibility of the 8000 tax credit being used for a down payment as mentioned by HUD Secretary Shaun Donovan in a prepared speech.

Apparently it is now being called a “bridge loan” today and details are still very sketchy as to what exactly is going to become official.

My disclaimer at this point is that to my knowledge, things can still change with this thing, and I promise to keep you updated since I opened this can of worms. Also, rant ahead.

A bridge loan?

You have to be kidding me.

The term “bridge loan” is a term that is used by MBA’s when describing the way they are financing a company. It is right up there with words like “mezzanine financing, tranches, series A, B, C rounds, cap tables, convertible debt” and “warrants”.

It is not a term that you use when handing out a loan that has financing terms worse than a payday loan and could be considered criminal if not cloaked in the right light to someone who works as a manager at the local Kentucky Fried Chicken and probably can’t afford the house he is buying in the first place because he is one missed paycheck away from being late on his mortgage.

The first “nonprofit” group in America to cloak their greed in public?

The Memphis Area Home Builders Association.

From what I can tell, here is how the mechanics of the “bridge loan” program work if you live in Memphis and want to buy a $100,000 house with a “bridge loan”.

You don’t have the $3,500 for a down payment on an FHA loan.

You borrow the $3,500 from the “non-profit” arm of the Memphis Area Home Builders Association and agree to pay them a “service fee” of $500.

The non profit then handles the paperwork needed for the amended tax return and bank account setup to handle the arrival of the $8,000 tax credit.

TRANSLATION: “We are going to loan you the money, you are going to pay us five-hundo right up front. Then we are going to have you sign over your tax refund check to us and we will set up a separate bank account with us as signers so that we can be sure we get our money back from you when the government wires the money into the account.”

This is possibly the greatest LEGAL business scam I have ever heard of — the only thing that I can find wrong with it is that the MBA guy who came up with it used a term he was familiar with like “bridge loan” to describe it. For his target market, he may have been better served to have called it “a little get-you-by” money or maybe even “Obama money” so customers knew who to vote for in the next election.

Let’s do the math.

Loan out $3,500, collect $500 up front and get $3,500 90 days later (that is being very generous – it could take days or even weeks to get the money back).

The above transaction described means that conservatively this transaction should generate north of about a  60% interest rate on an annualized basis.

HOLY HIGHWAY ROBBERY. TO SOMEONE WHO CAN’T AFFORD IT.

Sounds exactly like something called a “tax refund anticipation loan” to me. Google “Tax Refund Anticipation Loan” and see what the financial wizards have to say about those things.

But what do I know.

I am just a loan officer.

Who hands out free money to people because all of the smart people who make the rules tell me that I should.

I think that I am going to go start a non profit.

Heck, who knows – maybe this will be the silver bullet that turns the market around.

Related Posts

• Are Any Lenders Doing The 8000 Tax Credit Monetization?
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