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Tax credits could help foreclosure victims buy homes again
By Jeff Lazerson
What I think: Govs. Brown and Newsom both tried to divert $331 million from California’s $20.6 billion share of a national mortgage settlement intended to assist homeowners who suffered from the recession-era mortgage crisis.
A few weeks ago, the California Supreme Court put an end to these budget shenanigans by refusing to hear a Newsom appeal of an earlier appellate court rebuke.
Previously victims’ rights groups had sued to make sure the funds went to victim homeowners and not to California’s general fund.
Perhaps a million or more crisis-era Californians lost their homes through a short-sale, deed-in-lieu or foreclosure. Many of them are still renting, still emotionally unprepared to resume homeownership due to their previous real estate experiences.
Others may be financially unable to get back on the homeownership path due to too little income, inadequate down payment or ongoing credit challenges.
It’s important to note that most Americans gain family wealth through the forced savings and appreciation homeownership provides.
One constant for many of those mortgage-meltdown victims and first-time buyers is sellers’ bias against small down payments versus all-cash offers or substantial down payments.
As sales prices rise, the number of first-time buyers paying for conventional mortgage insurance is increasing substantially because they’re putting less than 20% down. Nearly 35% of first-time buyers needed mortgage insurance during the first quarter of this year, compared with almost 26% in 2014, according to Inside Mortgage Finance.
All-cash buyers are much more desirable to sellers because they can close escrow quickly and sellers never have to worry about loan approval contingency angst. Those making down payments of 25% or more can negotiate more easily or cure appraisal values that come in below the contract price. Buyers with 3% to 10% down simply don’t have the cash to cover the difference between the appraised value and the sales price.
Here’s a possible solution: If Newsom were to offer sellers a $1,500 tax credit for every $100,000 they get from a mortgage-meltdown victim or a $1,000 tax credit per $100,000 paid by a first-time buyer, many more sellers would say yes to those home shoppers.
For example, a seller would get $9,000 in state tax credits for a $575,000 sale to a victim buyer or $6,000 for selling to a first-time buyer. Unused tax credits could be rolled over to future tax years.
California tax credits would be new for mortgage victims, but it’s not unprecedented.
CPA Jeff Hipshman of HMWC CPA’s and Advisors points to employment-related California tax credits.
For example, let’s say a married couple with $250,000 in taxable income has a state tax bill of $17,756, Hipshman said. So, that $9,000 tax credit would mean you owe California just $8,756. If you got an $18,000 tax credit, you’d have another $244 credit for next year. Very nice!
Mortgage broker Jeff Lazerson can be reached at 949-334-2424 or email@example.com. His website is www.mortgagegrader.com.
Jeff Lazerson - Mortgage Columnist since 2011