HLM Mortgage Blog

Federal Tax Day,T.1Refunds Cannot Go Directly to Lenders Monetizing First-Time Homebuyer Credit, Geithner Says,(Jun. 25, 2009)

The IRS will not send first-time homebuyer credit refunds to government entities that monetize the credit to help purchasers with downpayments, Treasury Secretary Timothy F. Geithner said in a June 16 letter to a member of Congress. The U.S. Department of Housing and Urban Development (HUD) is allowing certain lenders to offer bridge loans based on the expected amount of the credit to use as a downpayment on a home purchase. However, refunds must go the qualifying homebuyer, Geithner said.

Bridge Loans

The first-time homebuyer credit can be as much as $8,000 for qualified home sales before December 1, 2009. Taxpayers claim the credit on Form 5405, First-Time Homebuyer Credit.

The IRS will not allow taxpayers to claim the first-time homebuyer credit in advance of a purchase (TAXDAY, 2009/04/14, I.5). However, HUD will permit taxpayers financing a purchase through a state housing agency to monetize 100 percent of the credit as a downpayment (TAXDAY, 2009/06/04, M.2). Taxpayers using Federal Housing Administration (FHA) lenders can apply the credit to closing costs or make a larger downpayment above the FHA-required 3.5-percent minimum.

Refunds

Rep. Cathy McMorris Rodgers, R-Wash., asked Geithner if the IRS could send a taxpayer’s first-time homebuyer credit directly to the state housing agency that made the bridge loan. "The Internal Revenue Code requires the IRS to pay tax refunds to the person who made the overpayment, in this case, the homebuyer. This process ensures that taxpayers expeditiously receive the appropriate tax refund while also protecting against fraud and abuse of the tax system," Geithner explained.

By George L. Yaksick, Jr., CCH News Staff