On Wednesday night, Congress overwhelmingly passed a standalone bill that would extend the closing deadline for the Home Buyer Tax Credit to September 30th. The extension will apply ONLY to buyers who were in contract by the in-contract deadline of April 30th, but those buyers will now get an additional three months to close beyond the original June 30th closing deadline. As of this writing, the bill still needs to be signed by President Obama, but that is expected sometime today.
UPDATE: President Obama signed the legislation on Friday, the extension is now law.
The prospects for the extension had fluctuated in the past few weeks. Although there was overwhelming support to give relief to the estimated 180,000 buyers who would not be able to meet the June 30th deadline, the extension had been tied to a much more controversial bill that would also extend unemployment benefits, which was opposed by Republicans out of concerns for its effect on the deficit. Fortunately, from the perspective of real estate industry professionals and affected home buyers (and sellers whose transactions might have been canceled without the extension), Congress separated the tax credit extension from the more contentious provisions, allowing for its passage this week.
This is indeed good news, for a couple of reasons.
First, and most importantly, the extension recognizes that thousands of home buyers and sellers would have been unfairly impacted by the unrealistic June 30th deadline. When Congress set up the deadlines back in November 2009, it could not have anticipated the inherent delays in the transaction process caused by more stringent financing requirements by banks and the higher percentage of sales that involve “short sales” that require a lengthy approval process. Moreover, no one anticipated how many home buyers worked to the April 30th deadline, delaying their purchases until the very end of the eligibility period and further exacerbating the inherent sluggishness in the system. Through no fault of their own, thousands of buyers would have missed the June 30th deadline, even potentially canceling their contracts and putting their sellers back on the market.
Second, even if you are concerned about the effect on the deficit, the extension is only allowing the tax credit to work the way it was supposed to. When Congress set up the Home Buyer Tax Credit, it anticipated a certain number of buyers being able to claim the credit, without considering how difficult it might be to close by June 30th given the expected surge of transactions, financing delays, and the impact of short sale processes. Essentially, Congress fixed a problem with the initial legislation. This was not an expansion of the tax credit, just a needed repair that allowed the credit to have its intended effect. As such, it should not increase the expense of the program beyond what was initially projected.
Third, the extension will allow an orderly processing of transactions by the industry. It would have been nice to get the extension two weeks ago, before thousands of mortgage lenders, title processors, lawyers, and settlement agents scurried to get deals closed by June 30th, but we’ll at least be able to see an orderly and normal transactional process for the next three months.
Remember that the extension only applies to buyers who were in contract by June 30th — the extension does not open up the credit to new buyers. As such, it was a good decision by Congress, recognizing the impact of the unreasonable June 30th deadline on thousands of buyers and sellers, and allowing people who expected the credit to receive it.
Thank you -