WASHINGTON, DC, May 12, 2009 - Today the secretary of the U.S. Department of Housing and Urban Development, Shaun Donovan, said that the Federal Housing Administration is going to permit its lenders to allow homeowners to use the $8,000 tax credit as a downpayment.
Donovan's remarks came in an address to several thousand Realtors(R) gathered this morning at The Real Estate Summit: Advancing the U.S. Economy, a special daylong session at the Realtors(R) Midyear Legislative Meetings & Trade Expo.

"We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment," Donovan said. According to Donovan, the FHA's approved lenders will be permitted to "monetize" the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

Donovan said the Obama administration plans to further stabilize the housing market. "I do think we have some early signs that the market overall is stabilizing," said Donovan. "Since January we've seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate."

As with anything the "Devil will be in the Details". How will the Lender "monitize" the downpayment? What this sounds like is that the Lender will make a 2nd mortgage loan to the buyer secured against the tax refund. Hey does this sound anything like the "tax refunds loans" that pop up each year at tax season?

I'm also pretty sure that these won't be free. Most likely there will be a payment or interest rate associated for "monitizing" the credit.

So we are coming back to 100% loans for those that have no money into the property, no savings and may have a shaky employment or credit history. While this type of arrangement might make sense for some borrowers, ie. those with the funds that just don't want to use them and have shown an ability to save and manage their finances, it will probably be opened up to the masses and we will see those first time buyers with little or no savings and now nothing in the deal buying the biggest house they can get. Are we just setting up for a crash in the future?

Why not do something simpler like making the tax credit available to anyone purchasing a 1-4 unit property. Whether a fist time buyer, owner occupant or investors. Even if it is not forgivable by opening it up to a greater list of buyers you will help eliminate the inventory of unsold house.

It's simple economics, supply and demand.