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Groups lobby for home-buying incentives in new president's stimulus plan

November 18th, 2008 11:56 AM by Lehel Szucs

Groups lobby for home-buying incentives in new president's stimulus plan

By Kenneth R. Harney
November 16, 2008
What will it take to get consumers off the sidelines to buy more houses and help stimulate the economy?

How about a mortgage at a 2.99% fixed rate for 30 years for anyone who buys a home before July 1? Or a nonrepayable federal tax credit of 10% of the home price up to $22,000?

At the association's annual convention this month, chief economist Lawrence Yun said Congress should authorize a housing stimulus that in the coming year would reduce new purchasers' 30-year fixed rates 1% or more below prevailing rates.

The Realtors also plan to lobby for a revised home purchase tax credit program -- removing the current requirement that credits be repaid -- and to make permanent the $729,750 high-cost-area limits on mortgage amounts available through Fannie Mae, Freddie Mac and the Federal Housing Administration.

Buy-downs -- essentially rate subsidizations -- have long been a tool used by real estate sellers, buyers and brokers to enhance the affordability of purchase transactions. Here's how they work: If 30-year mortgage rates are around 6.5%, as they were in early November, a seller might offer to subsidize the interest rate of a buyer by paying the lender money to cover the difference.

Though the cost to do so varies according to market conditions, a rule of thumb for such buy-downs, according to John Paul Nicolaides of Wells Fargo Home Mortgage in Red Bank, N.J., is that for each quarter-percentage-point reduction in rate, the subsidizer -- in this case the seller -- would pay about one point (1%) of the mortgage amount to the lender.

A rate reduction of a full percentage point to the buyer, in other words, would cost the seller four points. On a $200,000 loan, that would come to $8,000 (4 times $2,000). On the same-size loan, a buy-down of 2% -- from 6.5% to 4.5% -- could cost $16,000.

In both the builders' and the Realtors' proposals, the buy-down subsidy would be paid by the federal government. David Ledford, senior vice president for housing policy at the National Assn. of Home Builders, acknowledged that a mass-market buy-down plan would be expensive -- an estimated $130 billion to $140 billion.

But Ledford contended that it would be a cost-effective way to energize the housing sector and stimulate the broader economy.

Don't hold your breath for 2.99% 30-year mortgages. But smaller rate buy-downs -- along with a revised tax credit -- just might make it into the mix.

Harney is a syndicated columnist for the Washington Post Writers Group.

Posted in:General
Posted by Lehel Szucs on November 18th, 2008 11:56 AM



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