All Home Buyers Could Be Eligible for Expanded Tax Credit

With rising mortgage rates threatening to squelch a potential housing recovery before it even gets started, a coordinated effort by business interests and members of Congress is seeking greatly expand the new $8,000 tax credit homebuyer tax credit and make it available to more than just first-time homebuyers.

Legislation introduced today by Sen. Johnny Isakson (R-Ga.) would increase the maximum tax credit to $15,000 and remove a number of restrictions, including limits on income and the first-time buyer requirement. The bill was co-sponsored by several members of both parties, including Senate Banking Committee Chair Chris Dodd (D-Conn.).

Coinciding with the bill's introduction, several business groups issued calls today for just such legislation, led by the Housing Working Group of the Business Roundtable, an association of U.S. chief executive officers. The National Association of Realtors issued a statement in support of the legislation as well.

"The housing market continues to be a drag on the economy, John Castellani, president of the Business Roundtable, told Bloomberg News. "We believe that if we don't stabilize this vital sector, we can't turn the tide on the recession."

A spokesperson for the Obama Administration declined to say whether the president would support the legislation.

Would expand, extend tax credit

The bill would extend the tax credit to purchases made for up to one year after passage; the current purchase deadline is Dec. 1, 2009. It would also allow purchasers to split the credit between two tax years and eliminate current income caps on individuals and couples seeking the credit.

The Business Roundtable also urged the administration to continue the Federal Reserve's efforts to keep mortgage rates at historically low levels, e.g., below 5 percent, for the next 12 months. Mortgage and refinance rates dropped sharply after the Fed announced in March that it planned to purchase $1.25 trillion in mortgage securities and Treasury bonds to support lending. Over the past month, however, mortgage rates have surged upward once again, raising questions as to how aggressively the Fed would have to act to send them back down again, should it choose to do so.

Present $8,000 credit seen as boost

The current $8,000 tax credit is widely credited for stimulating home sales even as rising mortgage interest rates have put the brakes on a mortgage refinancing boom that followed the Fed's actions in March. According to the Mortgage Bankers' Association, home purchase mortgage applications have continued to creep up over the past month, even as applications for mortgage refinacings have fallen sharply. Supporters of the new legislation believe that expanding the tax credit would stimulate the housing market even further, or at least help keep it from sinking back in the doldrums should mortgage interest rates continue to rise.