State Program Will Leverage Federal Tax Credit to Provide Downpayment Assistance

On Wednesday, November 19, 2008 the Missouri Housing Task Force, on which I serve, held their third meeting in Jefferson City at the State Capitol Building. The Task Force received public testimony from the Missouri Housing Development Commission, National Association of Home Builders, Federal Reserve Bank of St. Louis and the Missouri Real Estate Appraisers Commission.

Missouri Housing Development Commission Executive Director Pete Ramsel discussed a new program within the state agency entitled “Tax Credit Advance Loan Program” that aims at leveraging the $7,500 federal tax credit to provide down payment assistance. According to Ramsel, the new program would enable first-time homebuyers in need of closing cost and down payment assistance to borrow funds on a short-term basis in anticipation of the federal income tax credit from the recently authorized tax credit by the federal government. Without this temporary loan many homeowners cannot buy a house and benefit from this tax credit incentive for first time homebuyers. The MHDC quickly worked to create this program at the request of the Task Force as concerns were noted at the last meeting that there was no way to monetize the federal credit. MHDC Commissioners approved the program at their most recent meeting and they hope to have it operation by the beginning of ’09.

National Association of Home Builders Senior Economist Elliot Eisenberg testified on the cost of regulation on the housing industry and Missouri economy. Eisenberg noted that in 2007 the home construction industry accounted for 4% of the gross state product. The home building industry generated $8.4 billion in economic activity through 21,500 new construction permits. In addition, Eisenberg noted that for every 100 homes constructed a community receives $10.6 million in local income and generates $1.3 million in local tax revenues. Eisenberg stated that overregulation often prices potential new homeowners out of the market, which in turn further slows a depressed economy.

Federal Reserve Bank of St. Louis Assistant Vice President William Emmons discussed the issues facing the mortgage lending industry and the severity of the current economic situation. Emmons noted that the current crisis is major, but he does not believe we are heading into a recession.

Emmons blames Wall Street manipulation of the marketplace, failure by the federal government to properly regulate lenders, homebuyer financial illiteracy, high pressure mortgage brokers and irresponsible lenders for the mortgage crisis. Emmons discussed how the credit-default swap occurred and the drastic implications it brought on the mortgage lending industry. Emmons expects the federal government to continuing prosecuting lenders, brokers, realtors, builders, appraisers and borrows for several years to come.

Emmons stated that too many consumers did not save enough money and had no buffer for a financial disaster and were unprepared when the economy slowed. Emmons stated that the Federal Reserve is aware of cases were lenders subjected themselves to a 100% loan to value ratio, which is unacceptable.

Emmons stated that the key to recovery will be Missouri’s ability to find sources of growth through jobs such as manufacturing. The Federal Reserve believes Missouri banks’ credit quality has declined, but overall they are safe and sound. Emmons concluded by stating that Missouri’s new home construction industry has collapsed and he does not see it recovering anytime soon.

MHDC Executive Director Pete Ramsel asked Emmons if Fannie Mae and Freddie Mac will recover and be back in business for the purchase of tax free bonds and low income housing tax credits. Emmons stated that he expects Fannie Mae and Freddie Mac to return to the market soon, but under a substantially different business model.

Missouri Real Estate Appraisers Commission provided an update on their recent dealings with an increased amount of complaints against licensed real estate appraisers. The Commission noted they have received a record number of complaints in 2008 and that a majority of the complaints are being submitted by the mortgage lending industry. Discussion took place among members regarding multiple appraisals for one property and the potential of lenders to shop from several appraisers for their preferred property valuation. Task Force Member David Griege of Paramount Mortgage quickly dispelled this possible scenario and stated that lenders always reserve the right for multiple opinions on property appraisals. Further, central Missouri Appraiser Ann Nunn Jones stated that licensed appraisers all have different ways of appraising property and it is seldom that two appraisers will come to agreement on an exact amount and that property valuations can be higher or lower for countless reasons.

Kevin Clingan
HBA President