There is only one rule of legislation, and that is the rule of unintended consequences. The latest case in point comes courtesy of an $8,000 first time home buyer tax credit, passed as part of the American Recovery and Reinvestment Act of 2009; the credit is designed to stimulate sagging demand for homes, particularly among new home builders. But one firm now says it has figured out a way to turn the post-closing tax credit into a pre-closing down payment — a move that should raise at least some eyebrows among anyone concerned about a growing number of homeowners that are finding themselves over-leveraged into a mortgage. An Alpharetta, Ga.-based firm, Metro Buyers Group, LLC, said Friday it will begin purchasing the tax credit from borrowers prior to closing, giving a check for the full $8,000 to any borrower that qualifies; the firm says the program is designed to help many would-be borrowers that wouldn’t otherwise have the money needed to make a down payment on a new mortgage. The program is already available through several mortgage lenders throughout the Southeast, the company said. “This program will have an immediate positive impact for builders,” said Doug Cotter, past president of the Greater Atlanta Association of Home Builders. “This is a legitimate monetizing program that actually works,” said David Abrahamson, vice president of S.E. operations for American Home Key Mortgage Company, one firm participating in the tax credit purchase program. Legitimate, perhaps — if only because legislators never envisioned that someone would set up a firm for the sole purpose to trade in tax credits. And its unclear exactly how the firm’s tax credit-into-cash program works. But whether the program “works” is likely in the eye of the beholder; originators clearly will think it works for them, because it delivers more borrowers to the closing table that wouldn’t otherwise be able to get there. But, as we’ve found out throughout this mess, originators are often notoriously short-sighted when it comes to managing credit risk (a joke from a colleague says that most loan officers only know three words: accept, deny, refer). “The program essentially seems to take money from the government and allows borrowers to use that as free money as leverage into a home,” said one bank risk officer that spoke with HousingWire, who said she wasn’t quite sure how the program would operate. “It looks sort of like seller-paid down-payment assistance, but this time the funds are coming courtesy of Uncle Sam.” She also said it would likely be hard for an originating bank to identify loans where this trade had taken place, if the loans were being originated via third party channels. The National Association of Home Builders has been marketing the credit to consumers heavily since its introduction, and recently said that during Feb. and March, 1.5 million consumers visited a website developed by the organization to explain the tax credit, which expires at the end of November. For more information on the program, visit http://www.metrobuyersgroup.com. Write to Paul Jackson at [email protected].

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