U.S. Congress has been busy wrangling with the Housing and Economic Recovery Act for a long time and understandably so. It's a mammoth undertaking and requires lots of debate and compromises and just good old-fashioned work. The midnight oil type of stuff. It's designed to help the struggling real estate and mortgage markets in particular, but also the overall economy to get back on two solid feet.
At least one provision in it is causing heart palpitations in those who are seeking more help for homeowners facing foreclosure.
The issue in question is the tax credit that would give home buyers a credit toward their income tax obligation. To qualify for it the buyers cannot have owned a principal residence in the last three years, in essence close to being a first-time buyer. They can credit either of $8,000 or 10% of the sales price, whichever is less, against the income tax they owe on the purchase year. The credit will gradually decline for single filers at $75,000 and for married couples filing jointly at $150,000. Now here is the thing. The credit has to be paid back in the following 15 years, starting in the second year, and it's done incrementally. These are the main features of the program.
How much does this do for the current housing mess? Not much I'm afraid. The tax credit is more or less for the first-time buyer which is a relatively narrow market segment. Its impact as a demand stimulus to the present agony would be minimal. Moreover, to figure it all out on a tax return just adds more laborious paperwork to the process. Anyway, the time spent drafting this tax credit legislation might have been better spent on an initiative that would help pull the mortgage industry up from the mat.