Home Buyers' Credit Deadline Extension Won't Revive the Market

Is Congress considering extending the home buyer credit again? Not exactly. The Senate is considering a new proposal, co-authored by Majority Leader Harry Reid (D-NV), which would allow anyone already eligible for the credit to close their home by September 30th, instead of by June 30th. Don't confuse this with a new three-month extension to buy a home that would qualify for the credit.

All this bill would actually do is provide those who already signed contracts by the credit's deadline -- April 30th -- a few extra months to close their transaction. New home sales would not qualify, so it wouldn't reverse the drastic fall in new purchases. The motivation is explained in an article from the Washington Post:

The National Association of Realtors said many home buyers will not be able to meet the June 30 closing deadline because of the surge in loan volume and delays related to home appraisals and short sales, transactions in which lenders allow struggling homeowners to sell their homes for less than they owe on them.

Given this development, the proposal seems reasonable. The spirit of the credit was to provide a government rebate to those who initiate the purchase of a home by April 30th. After all, these consumers don't necessarily have much control over how quickly appraisals and other procedural steps occur. They shouldn't be penalized due to a flood of mortgage applications slowing down their closing.

One worry, however, is that realtor could try to game the system. What we don't want to see is the back-dating of contracts. For example, if you decide to buy a home in June and close in September, you shouldn't qualify for the credit. But if you back-date the contract to April, then the government will unwittingly provide you with the credit. Of course, that would be fraud. But as we learned last fall, fraud would not be a new development for this program.