Mortgage Assistance Guarantee: Hook, Line, or Sinker?
As though the $8,000 non-repayable first-time home buyer tax credit recently passed as part of the national stimulus weren't enough of an incentive to become a homeowner, certain industry groups are now supplementing the up-front tax credit with an incentive of their own on the back end of the mortgage process. In the event of sudden job loss due to unexpected layoffs, some qualified first-time home buyers are now being guaranteed up to six months of mortgage payment assistance to stay in their homes and avoid foreclosure. But the question remains whether these programs will have the desired effect of encouraging home ownership, and just what impact they will eventually have on retaining home ownership for borrowers that lose their jobs or health and are unable to make payments for longer than six months. The California Association of Realtors (CAR) announced late last week it would offer a new "mortgage protection program" that promises qualified first-time home buyers -- buyers that have not bought a home in the last three years -- the guarantee of up to $1,500 per month for six months in the event of job loss due to layoffs. The CAR program is applies to first-time home buyers that close on or before Dec. 31, 2009, purchase a home in California, are considered a W-2 employee but not self-employed and use a California Realtor in the process. CAR said it would provide buyers with up to $1,500 per month for six months, and co-buyers with up to $750 per month for up to six months, in the case of layoffs. The program also includes benefits for accidental disability as well as a $10,000 death benefit, CAR said. A separate localized effort, announced Monday by North Carolina-based Brookside Homes, will pay up to $1,000 per month for six months in the event of job loss due to layoffs. The buyer must have occupied the home for at least 60 days before the job loss and have been continuously employed 12 consecutive months before settlement. Brookside also said in the event of a spouse's job loss, it would pay for the share of income the spouse earned (if a homebuyer's wife made 60 percent of the combined income before being laid off, Brookside will pay $600 per month). The catch? Under Brookside's program, only homes purchased in a specific community, Leland, N.C.-based Ashton Place, will qualify for the program. The community boasts seven floor plans; the three- to four-bedroom homes range from $184,500 to $209,500 with an average 1,600 square feet. The community's Web site and builder media statement encourage the use of the $8,000 first-time home buyer credit as an incentive to purchase in the community under the mortgage payment guarantee program. "These payments will be covered by the community's developer," officials said at Ashton Place's Web site. "Their bets are on the improving economy and the resilience of all Americans. The difficult times will be short lived, and you have an opportunity to buy when the most value is available and the best interest rates." According to statements made by Brookside owner Page Robertson in the media statement about the program, jobless rates in the qualifying area are "now over 10 percent." If that's not a risky enough bet for any home buyer considering relocating just to take advantage of the program, there's always the issue that finding another job within six months of being laid off is not part of the guarantee. Oh, and did we mention the Brookside program only applies to 25 buyers? You read that correctly: two dozen, plus one. And that's not even the first 25 buyers to be laid off within the Ashton Place community. That's just the first 25 people to buy within the community that will be guaranteed under the program. These and similar guarantee programs in the face of rising joblessness may have the desired effect of soothing consumer fears and coaxing buyers onto the market and into homes in some local areas. They may work as intended and provide a backstop against delinquency, default and foreclosure in the case of extended joblessness. Or they may provide only temporary relief for borrowers that find themselves locked out of job markets that continue to dry up. With the promise of "We'll pay your mortgage if you lose your job," indeed, few prospective home buyers may be able to resist. Hooked in also by mortgage rates that continue to linger at historic lows and an $8,000 non-repayable tax credit, borrowers may come flocking to California Realtors and North Carolina communities. Once on the line for mortgage payments, however, the issues of job scarcity, of payment non-affordability and home prices that continue to sink don't disappear, even if part of the monthly payment is guaranteed temporarily by mortgage assistance guarantee programs. Write to Diana Golobay at email@example.com.