UPDATE: Regarding the $8,000 First Time Buyer Tax Credit

More insight into the $8,000 first time buyer tax credit changes:

by J. Craig Anderson - Jun. 3, 2009 12:00 AM
The Arizona Republic
Phoenix-area realty professionals said the U.S. Department of Housing and Urban Development's new down-payment-assistance program for first-time home buyers falls short of their expectations.

Local mortgage brokers and real-estate agents had been waiting for news from HUD about the plan, originally announced in mid-May but then quickly withdrawn, that would let first-time buyers eligible for a federal income-tax credit of up to $8,000 apply for a "bridge loan" to cover the down payment on a Federal Housing Administration loan.

On Friday, HUD announced that it would move forward with the program but would not allow lenders or non-profit groups to advance the tax credit to home buyers to cover FHA's required 3.5 percent down payment. However, HUD-approved non-profit groups may front cash to be used for closing costs, mortgage insurance and any additional down payment on top of the 3.5 percent.
Also, local and state government entities are permitted to advance the full down payment to first-time buyers if they so choose, HUD said.

HUD spokesman Brian Sullivan said the original written announcement about the plan, known as a "mortgagee letter," had been removed from the federal agency's Web site because it was a draft copy that had been posted inadvertently.

The plan's final version contains additional restrictions designed to prevent entities that could be associated with a seller from covering a buyer's down payment, Sullivan said.

"There can be no connection between the seller and the source of the bridge loan," he said.

Phoenix mortgage broker Bob Wasieko of Security Mortgage Corp. said he didn't think the program in its final form would open up the housing market to prospective buyers who lack a down payment.

"Just like the FHA Hope for Homeowners program, tax-credit advances looks good on paper, but in reality, it seems unlikely anyone will benefit from this program," Wasieko said.

HUD's final decision also had its supporters, such as blogger Robin Medecke of the popular Mortgage Lender Implode-O-Meter, ml-implode .com, who thinks it's important for buyers to invest some of their own cash in the transaction. "FHA (for once) has taken a step back and come forth with unusually well thought out . . . guidance," Medecke wrote.