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Housing tax credit: Will they extend it?

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POSTED October 30, 2009 2:40 a.m.
The countdown has started.

There are now 31 days left until arguably the most effective part of the stimulus package – the $8,000 federal tax credit for first-time homebuyers - expires at midnight on Nov. 30. Only those in escrow with homes being bought by qualified buyers at that time will receive the tax credit.

One would hope our Congressman Jerry McNerney who has the distinction of having the nation’s worst region for foreclosures as part of his district – the Northern San Joaquin Valley – will step up to the plate and push for an extension.

The $8,000 has made a big difference for hundred of first-time buyers in Manteca, Lathrop and Ripon. Virtually every last one of them work in the valley and rented here. They could never compete with the bigger paychecks that allowed buyers who work on the west side of the Altamont Pass completely dominate the Manteca market from the late 1990s to just a few years ago when the mortgage meltdown started.

The buyers can afford the payments but often didn’t either have the 3.5 percent needed for the down payment and closing costs or – what is more often the case – the money after buying it to do remedial upgrades or cosmetic touches. The $8,000 has allowed them to buy with comfort as well as to spend money on the home – from new appliances to even updated carpet and such – afterwards. It also is an effective way to get working people farther away from the edge. More often than not the mortgage payment is the same as their rent payments meaning they have monthly housing costs stabilized. Toss in the fact mortgage interest is deductible and they actually have lower housing costs.

It is a win-win for the economy as it frees up money to spend on durable goods while stabilizing housing costs for the people who access the credit.

The tax credit is also widely acclaimed for keeping home sales going storing despite the glut of foreclosures.

So why, you ask, hasn’t Congress already extended the tax credit?

Some in Congress have raised questions about fraud. There have been 74,000 instances out of 1.4 million tax returns filed to take advantage of the credit that are probably fraudulent. They include everyone from 4-year-olds to illegal immigrants trying to claim the credit. If it’s that obvious, then one hopes the government didn’t pay out the $8,000. The fraud potential identified comes to $500 million while $10 billion has been distributed to those who legally could obtain the credit.

 Compared to the fraud and corporate horseplay that led to the mortgage meltdown and the Wall Street gluttony with a big chunk of the bailout money, the fraud is minuscule and is obviously easy to detect.

Yet there are those who are arguing this using the $8, 0000 tax credit would have bought homes anywhere. Pamper Wall Street, penalize Main Street. It’s an old morality tale when it involves Washington, D.C., politicians.

Even so, it is wrong to extend the credit to all homebuyers as some are lobbying.

Why should you reward the people who caused the mortgage mess in the first place by buying more home than they could afford?

Almost all are renting today. If they gave into temptation of buying more home than they could obviously afford and then – in the case of a surprisingly large number who went for loan modifications and decided not to honor those new loan agreements as prices dropped and simply allowed homes go into foreclosure - why should they be given another shot at sinking the economy?

And for laughs, Housing and Urban Development Secretary Shaun Donovan has expressed doubts the United States could afford to extend the credit that is expected to cost $1 billion a month.

How can the U.S. not afford to extend it? Or better yet, has the government through Republican and Democratic administrations alike been lying through its collective teeth about the need for home ownership to strengthen the economy and the fabrics of our communities?

Without the credit, investors will have the complete upper hand in communities ravaged by foreclosures. Right now they are mom and pops buying homes as rentals. Give it time, though and big business will get into rentals. Why? It’s all to do with cash flow. How else can you get such a hefty return on your investment? People have to live somewhere.

The Obama administration needs to cut some of the life support off to corporate types and keep the tax credit flowing for at least one more year to the working class.

It needs to still go to first-time buyers – those individuals who have not owned a home for three years.
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