First-time and repeat homebuyers profited from the tax credit offered as part of the Federal Recovery and Reinvestment Act initiatives designed to help jump start the economy. That package helped sustain the residential real estate market through the past two years and has been particularly helpful to first-time home buyers, many of whom felt left out during the protracted increases in home prices up to 2007.
The first homebuyer tax credit extended initially only to first-time homebuyers, expired in 2009 and was extended and expanded to include some repeat home buyers. As we approach the expiration of the extended/expanded period, not only industry insiders but savvy consumers, doubting the feasibility of another extension have been wondering what would be the next best thing to do to support a market still in need of crutches.
The evidence all around us, even in New Mexico that seemingly weathered the downturn better than most other areas, according to national trend reports. Mortgage payments for many, are far higher than the value of their homes. To alleviate the burden, consumers approach lending institutions seeking restructuring or modification of their loans only to receive no response or responses that make their situation more arduous. In cases where restructuring or modification becomes even more crucial because homeowner are facing reduction in earnings through job loss or other setbacks, unable to reach agreement with lenders for restructuring or modification, many simply choose to walk away to homelessness or rental at a price more affordable than mortgage. Still others try to sell but are unable to sell at a price high enough to pay off the mortgage balance. One alternative is to seek agreement for a short sale (the lender agrees to accept an amount short of what is actually owed) currently a long process with uncertain outcome.
If and when the short sale is executed, the beleaguered homeowner may face one of two additional challenges. They may be required to sign a promissory note for the difference between the amount owed and the amount of the sale or a tax liability for the amount forgiven by the lender.
Given this scenario many, it is welcome news that President Obama has chosen to tweak the previously agreed upon Home Affordable Assistance Program (HAMP).
The revised FHA- HAMP program in providing relief to homebuyers where it is needed most, will fill the gap that the expiration of the tax credit will leave and continue to support an industry that is still fragile and in need of stimulus.