Hello, LOs!
My colleague Georgia Kromrei has been diving into the potential implications of the various down payment assistance programs for first-time homebuyers. Right now there are two of them – a tax credit for up to $15,000, and a heavily means-tested first-generation homebuyer grant for up to $25,000.
Her feature drops on Monday morning, but I thought it would be cool to give you guys a sneak peak and highlight an interesting idea that came up during her reporting.
The $15,000 tax credit bill that's ostensibly modeled after President Joe Biden's campaign promise could trigger a cottage industry of payday lending, experts told Kromrei.
Think about it: your client is assured by their real estate agent that they would qualify for the $15,000 program but because it's a tax credit and not a grant, they don't receive the cash until their tax return comes in the following year.
"If you need down payment assistance, but don't have the funds up front — it could lead to payday loans," said Tai Christensen, director of government affairs at CBC Mortgage Agency. "It could get out of control very quickly. A community of people could be preyed upon, or charged higher interest rates because the market is so saturated."
The tax credit idea is not going to work as well as the grant, "just because from a lender's perspective, it's a risky delay," William Emmons, an economist at the Federal Reserve Bank of St. Louis, told Kromrei. He added that, from a policy perspective, it's problematic.
"It seems like it's defeating the purpose, from a policy perspective, if you're trying to initiate a sustainable home-ownership process but you're asking [borrowers] to compromise their financial situation even more," he said. "It's precisely the people who have difficulty coming up with a down payment who don't have liquid assets available."
The story will be available to HW+ members on Monday. If you're not already a member, you can sign up here. Hope you have a great weekend!
James Kleimann
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