Congress Could Extend Home-Buyer Tax Credit Closing Deadline
Original Post Date: June 10, 2010
By: Nick Timiraos
What if the home-buyer tax credit worked too well?
That’s the latest concern from the real-estate industry, which says that a last-minute home-buying rush in April created bottlenecks at lenders and real-estate service companies that may not be able to finalize purchases in time for tens of thousands of buyers to receive a tax credit worth up to $8,000.
On Thursday, there were signs that the real-estate lobby had successfully communicated those concerns to Congress. Senate Majority Leader Harry Reid (D., Nev.) joined Sen. Christopher Dodd (D., Conn.) and Sen. Johnny Isakson (R., Ga.) in sponsoring a measure that would give buyers until Sept. 30 to close on sales that went into contract by April 30. That measure would be attached to a job-related bill before the Senate. It would need House and Senate passage before being signed by President Obama.
Congress last fall extended an $8,000 tax credit for first-time home buyers and added a smaller $6,500 credit for current homeowners. For now, buyers who signed contracts by April 30 have until June 30 to close on those sales in order to claim the tax credit.
One worry has been that short sales, where a lender allows a home to sell for less than the amount owed, won’t receive requisite bank approvals in time to meet the closing deadline. Short sales are “clearly at risk” because agents and loan officers have little control over getting those deals approved, says Tim Wilson, who heads the mortgage and title divisions at real-estate brokerage Long & Foster Cos. “I think you’ll see a lot of those not make the deadline,” he says.
But real-estate agents say that “plain-vanilla” transactions are increasingly at risk because of backlogs at lenders, title companies and appraisal outfits.
At Wells Fargo & Co., employees from other sales divisions are being brought in to handle mortgages, and staffs are working weekends and nights to process higher volumes. “It’s all hands on deck,” says Greg Gwizdz, an executive vice president at Wells Fargo Home Mortgage. He says the bank has prioritized “every customer who qualified for the tax credit.”
A spokeswoman for Bank of America Corp. says the lender is also placing “increased priority” on loan applications submitted before the April 30 deadline.
Luke Hayden, president of PHH Mortgage, a lender based in Mount Laurel, N.J., says consumers can help speed the process along by being “very responsive to requests for documentation” from lenders. Underwriting standards are much more exhaustive today, and borrowers may not be accustomed to the amount of paperwork required, he says.
Delays have become more common as lenders and third-party firms, such as title companies, ensure that they comply with disclosure and appraisal requirements enacted to correct the excesses of the bubble years. The new regulations have prompted lenders to take extra caution at every step of the process.
The National Association of Realtors says 55,000 to 75,000 prospective buyers are at risk of losing their tax credit, but it’s unclear how many sales would actually fall through for those who miss out on the tax credit. Buyers could be hard-pressed to void signed sales contracts unless they’ve made their closing contingent on receiving the tax credit or are willing to forego any deposits.