This is very good news.  We’ve gotten probably a dozen questions on theQuestions section of the blog from people who are in this situation, which makes sense given how likely it is that a couple would get married after one spouse already owns a home, and then live in that home for a long period of time.  Although the legislation literally requires both spouses to be owners of the property, the IRS imputes ownership from one spouse to the other, which is something we speculated about when we initially discussed this issue.

We will be updating the various blog posts about this issue, and trying to find all the questions about this issue so we can let people know the good news.  That said, nothing about this changes the other three types of Marriage Penalties, which prevent a married couple from qualifying for the tax credit if one spouse is ineligible, if the spouses are eligible for different types of credits, or where both spouses are long-time homeowners but for different residences.  To change that, we’re going to need Congress to pass the legislation drafted by Congressman Engel.

My thanks to Mr. Schriber for clarifying this issue for us.

http://homebuyertaxcreditblog.com/

The FHA will propose to take the following steps: increase the mortgage insurance premium (MIP); update the combination of FICO scores and down payments for new borrowers; reduce seller concessions to three percent, from six percent; and implement a series of significant measures aimed at increasing lender enforcement. U.S. Housing and Urban Development Secretary Shaun Donovan previewed the changes in December of last year, noting that the FHA would announce additional details before the end of January.

Announced FHA Policy Changes:

1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending

• The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
• If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.
• This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
• The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.

2. Update the combination of FICO scores and down payments for new borrowers.

• New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
• This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
• This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

3. Reduce allowable seller concessions from 6% to 3%

• The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
• This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

4. Increase enforcement on FHA lenders

• Publicly report lender performance rankings to complement currently available Neighborhood Watch data – Will be available on the HUD website on February 1.
  • This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.
• Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
  • Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
  • This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
• Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process
  • Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
• HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
  • Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
  • Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches

In addition to the changes proposed today, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

HUD No.10-016
Melanie Roussell

http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-016

For sales occurring after November 6, 2009, the Act establishes income limits of $125,000 for single taxpayers and $225,000 for married couples filing joint returns.

The income limits for sales occurring on or after January 1, 2009 and on or before November 6, 2009, are $75,000 for single taxpayers and $150,000 for married taxpayers filing joint returns.

The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

1. Who is eligible to claim the $8,000 tax credit?
   First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and on or before April 30, 2010. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner. A limited exception exists for certain contract for deed purchases and installment sale purchases. See the IRS website for more detail.

   However, the law also allows home sales occurring by June 30, 2010 to qualify, provided they are due to a binding sales contract in force on or before April 30, 2010.

   Persons who are claimed as dependents by other taxpayers or who are under age 18 are not qualified for the tax credit program.

2. What is the definition of a first-time home buyer?
   The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.

   For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, IRS Notice 2009-12 allows unmarried joint purchasers to allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

3. How is the amount of the tax credit determined?
   The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
4. Are there any income limits for claiming the tax credit?
   Yes. For sales occuring after November 6, 2009, the income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $125,000 for single taxpayers and $225,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
5. The income limits for claiming the tax credit were raised when the tax credit was extended. Are the higher limits retroactive?
   No. The new income limits are only applicable to purchases occurring after November 6, 2009.

   The income limits for sales occuring on or after January 1, 2009 and on or before November 6, 2009 are $75,000 for single taxpayers and $150,000 for married couples filing jointly.

6. What is “modified adjusted gross income”?
   Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI. AGI is total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

   To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details.

7. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
   Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.
8. Can you give me an example of how the partial tax credit is determined?
   Just as an example, assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

   Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $138,000. The buyer’s income exceeds $125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

   Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

9. How is this home buyer tax credit different from the tax credit that Congress enacted in early 2009?
   The tax credit’s income limits were increased, the documentation requirements were tightened, and the program’s deadlines were extended.
10. How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?
    You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.
11. What types of homes will qualify for the tax credit?
    Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

    It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.

12. I read that the tax credit is “refundable.” What does that mean?
    The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

    For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

13. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
    Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April, 30, 2010).

    In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

14. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
    Yes. The tax credit can be combined with an MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.
15. I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
    No. You can claim only one.
16. I am not a U.S. citizen. Can I claim the tax credit?
    Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.
17. Is a tax credit the same as a tax deduction?
    No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

    A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

18. I bought a home in 2008. Do I qualify for this credit?
    No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit. Please consult with your tax advisor for more information.
19. Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return?
    Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

    Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

    In addition, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 18 state agencies have announced tax credit assistance programs, and more are expected to follow suit. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here.

20. HUD is now allowing “monetization” of the tax credit. What does that mean?
    It means that HUD allows buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.

    Under HUD’s guidelines, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans of up to $8,000. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.

    Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement. In addition, approved FHA lenders can purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.

    More information about the guidelines is available on the NAHB web site. Read the HUD mortgagee letter (pdf) and an explanation of the FHA Mortgagee Letter on Tax Credit Monetization (pdf). An FAQ about monetization (pdf) is available at the NAHB web site.

21. If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?
    Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

    Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.

22. For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, depending on in which year my credit amount is the largest?
    Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

Source: http://www.federalhousingtaxcredit.com/faq1.php 

1. Who is eligible to claim the $6,500 tax credit?
   Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.
2. What is the definition of a move-up or repeat home buyer?
   The law defines a tax credit qualified move-up home buyer (“long-time resident”) as a person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. That is, both spouses must qualify as long-time residents, with at least five years of principal residency for each. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.
3. How is the amount of the tax credit determined?
   The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.
4. Are there any income limits for claiming the tax credit?
   Yes. The income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) above those limits. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
5. What is “modified adjusted gross income”?
   Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI. AGI is total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details.
6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
   Possibly. It depends on your income. Partial credits of less than $6,500 are available for some taxpayers whose MAGI exceeds the phaseout limits.
7. Can you give me an example of how the partial tax credit is determined?
   Just as an example, assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $6,500 by 0.5. The result is $3,250.Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $138,000. The buyer’s income exceeds $125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $6,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,275.

   Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008? How is this different than the rules established in early 2009?
   The previous tax credits applied only to first-time home buyers and were for different amounts of money.
9. How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements?
   You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and repeat home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.
10. What types of homes will qualify for the tax credit?
    Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse’s family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.
11. I read that the tax credit is “refundable.” What does that mean?
    The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $6,500 home buyer tax credit. As a result, the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000 owed).
12. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
    Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April 30, 2010).In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. Be sure to check with a tax advisor in cases where a HUD-1 form is not used at settlement to be sure you have sufficient documentation to attach to IRS Form 5405.
13. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
    Yes. The tax credit can be combined with an MRB home buyer program.
14. I am not a U.S. citizen. Can I claim the tax credit?
    Perhaps. Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. The IRS provides a definition of “nonresident alien” in IRS Publication 519.
15. Is a tax credit the same as a tax deduction?
    No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $6,500 in income taxes and who receives an $6,500 tax credit would owe nothing to the IRS.A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer’s tax liability would be reduced by $975 (15 percent of $6,500), or lowered from $6,500 to $5,525.
16. Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return?
    Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.Buyers should adjust the withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

    In addition, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 18 state agencies have announced tax credit assistance programs, and more are expected to follow suit. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here.

17. HUD allows “monetization” of the tax credit. What does that mean?
    It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.Under the guidelines announced by HUD, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.

    Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.

    In addition, approved FHA lenders can purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.

    More information about the guidelines is available on the NAHB web site. Read the HUD mortgagee letter (pdf) and an explanation of the FHA Mortgagee Letter on Tax Credit Monetization (pdf). An FAQ about monetization (pdf) is available at the NAHB web site.

18. If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?
    Yes. The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.
19. For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, depending on in which year my credit amount is the largest?
    Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

Source: http://www.federalhousingtaxcredit.com/faq2.php#2

With the rising pace of globalization countries across the world  calling for greater restrictions on global trade and investment. Globalization is now a controversial development associated with exploitation of workers, the environment and the widening inequalities and discrepancy in the world. In addition, globalization is said to have a direct impact in the increase of unemployment, as well as undermined the urban and social structure of many nations. The key players of globalized economies are multinational corporations. The relationship between multinational corporations and private foreign direct investment is the driving force of globalization. The growth of private foreign direct investment in the developing world has dramatically increased over the years. However, the objective of many multinational corporations is not in the interest of poverty, inequality, employment, and or the environment of the developing country but rather to maximize their return on investment.

The objective of this essay is to analyze the international flow of financial resources, particular the relationship of private foreign direct investment of multinational corporations and the impact they have on the economy of the country in which they operate. In addition, the goal is to emphasize the importance of national control over domestic economic activities and minimize the relationships between the multinational corporations and developing country governments. The recommendation is to enforce the importance of national control over domestic economy as well as the activities of multinational corporations’ private direct investment by applying a combination of approaches, such as the traditional neoclassical theories with emphasize of structural change and the awareness of international dependence.

Globalization

Before we analyze the relationship of private foreign direct investment of multinational corporations and the effects on national economies, we need to understand the role of multinational corporations in globalization. Globalization is the integration of national economies into the international markets through trade, foreign direct investment, capital flow, and technology. It is the process of reducing the barriers between national borders in order to create a flow of goods, capital, services as well as labor. The vehicles that facilitate this process are multinational corporations.

In the last two decades the walls between the international markets have dropped due to the rapid growth of the internet and technology, “Just a decade ago, Asia, Latin America and Russia were on financial life support from the International Monetary Fund and World Bank. The U.S. was planning yet another round of global trade negotiations. The European Union was writing a constitution to shift power to Brussels from member nations” (Davis, 2008). However, with abuse of overseas companies, increase in unemployment rate, and financial unsteadiness, it has become apparent that governments are responding to the negative results of globalization.

Globalization has failed to improve the overall economic wellbeing of individuals around the world. It is due to the self-interest of high-income OECD countries (multinational corporations) that have made it difficult for other countries to enter international markets, “The main beneficiaries of free trade and deregulated markets are those already specialized in technologically advanced, high-value-added sectors, and they in turn make it very difficult for those seeking to become competitive in such sectors” (Davis, 2008). The ability to compete as a developing nation in so called “free trade and deregulated markets” against OECD countries is nearly impossible. This is why many developing nations are competing for multinational corporations to reside within their economy to obtain technology advancements, however, with these advancements comes threats to domestic activities and national firms. It is apparent the abuses and greed of economic globalization has brought the end to the philosophical ideal of what we hope globalization would achieve for the masses. Now let’s look at the multinational corporations and relationship to private foreign investment in relation to impact it has on countries in which they operate.

Multinational Corporations and Private Foreign Direct Investment

Over the past several decades, multinational corporations have been the key contributor to the astonishing growth of international trade and capital flows. Some of the biggest multinational corporations have budgets that exceed several national gross domestic products. Multinational corporations have a powerful influence in local economies as well as the world economy and play an important role in globalization. The majority of these firms are from OECD countries such as United States, Japan, and several countries from Europe presenting a unique opportunity, however, creating domestic political and economic issues for the many developing.

According to Todaro and Smith, “foreign direct investment has risen from an annual rate of $2.4 billion in 1962 to $35 billion in 1990 before surging to over $147 billion in 2002 and a record $334 billion in 2005”. With the recent dramatic increase foreign capital flow, the nature of flow goes from the developed country to another, with the majority of the capital hovering in countries with the highest financial return. These corporations have become entrepreneurs looking for the most profitable opportunities in a global market.  Due to the inflows of capital within the developing countries, a majority of these countries feel unable to negotiate with these powerful companies. However, the control and influence within the developing countries are predominantly strengthened by oligopolistic market position. Meaning they are one of few players in the worldwide product market. Even though the multinational corporation presents strong political and economic presence, the overall capital flow to developing countries minimal in relation to the overall total investment, the majority of the capital flow is from domestic investment.

The issues surrounding the benefits and costs of the private foreign investment are controversial especially in relation to the diverse activities of multinational corporations and the impact on the economic development of these developing nations. In the next section, we analysis the benefits and costs of the foreign direct investment and the role of multinational corporations and come to the understanding that the benefits haven’t outweighed the costs of this globalization revolution.

The Benefits and Costs of Private Foreign Direct Investment

In order to understand the argument to enforce the importance of national control over domestic economy as well as the power and influence of multinational corporations’, we need to look at the benefits and costs of private direct investment The benefits of foreign private investment is generally viewed as way to obtain necessary resources, financial resources, management experience, entrepreneurial traits, technology, human capital, government revenue and training programs. Therefore, the contribution of multinational corporations to national development is its role in filling the resource gap between investment and creation of savings as well as the trade gap.

The costs of private foreign investment and the activities of multinational corporations outweigh the benefits they present within developing nations. Even though multinational corporations supposedly decrease domestic savings and investment rates by diminishing the threat of competition by their exclusive relationship with governments of the countries in which they operate, however, they fail to reinvest their revenue back into the economy.  This reinvestment into the economy would increase the welfare of certain individuals providing them domestic income as well as enable local firms that could supply them with supplies that they would on the other hand have to import. In addition, in the short-term multinational corporations investment designed to improve foreign exchange position of the recipient nation, however, in the long-term it reduces the earnings on both current and capital accounts.

Even though, multinational corporations contribute to public revenue in the form of corporate taxes, their contribution is considerably less due to the practice of transfer pricing, excessive investment allowances, and tariff protection provided by the government. With Multinational Corporation’s dominance of local markets, the benefits of their resources may have little impact on developing local sources of these scarce skills and resources and may in fact inhibit their development by inhibiting the growth of native entrepreneurship.

The impact of multinational countries on development is unbalanced and in many cases are supporting dualistic economic structures and increasing the gap of income inequalities. Their presence and activities are redirecting resources away from needed food production to the manufacture of products catering primarily to the demands upper tier of society and foreign consumers. Therefore local resources tend to be allocated for socially undesirable projects, thus contributing to the inequality between rich and poor as well as the rural economic opportunities.  Lastly multinational corporations use their economic power to influence government policies in directions unfavorable to development in order to achieve their own self interests. They try to obtain additional protection from the government, tax breaks, and cheap resources. Most importantly, the foreign investment by multinational corporations suppresses domestic entrepreneurship.

Traditional Neoclassical Growth Theory

In order to enforce the importance of national control over domestic economy as well as the activities of multinational corporations’ private direct investment we must apply the traditional neoclassical theories with emphasize of structural change and the awareness of international dependence.  The traditional neoclassical growth theory proclaims a free market that encourages domestic and foreign investment thus creating rate of capital growth. According to the traditional neoclassical growth theory, output growth results from three key factors, increase in the quantity of labor, increase in population growth as well as education, and the increase in capital through saving and investment, and the development of technology. Open economies, those with trade and foreign investment, however, experience income convergence the higher levels as capital flows from rich countries to poor countries where capital labor ratios are lower and this returns on investments are higher. Therefore, by hindering the inflow of foreign investment, the heavy-handedness of LDC governments, according to neoclassical growth theory, will hold back growth in the economies of the developing world.  The issue with many developing nations, especially lower developing nations, is extremely different in structure and organization, therefore the idea of a pure competitive markets simply don’t exist either do the economic and social perspective that western nations posses.  Which means that we need to tailor the neoclassical theories of open economies and free markets these cultural differences. In addition, apply structural change. Structural change emphasizes on traditional neoclassical theories as well as with the right mix of economic policies will generate beneficial patters of self-sustaining growth. However, we need to take into consideration international dependence and the emphasis on international power imbalances and the need for fundamental economic political and institutional reforms both domestic and worldwide.  International dependence acknowledges the issues of the activities of Multinational Corporation as well as the foreign private investment.

CONCLUSION

The fuel for globalization over the years has been the entrepreneurial activities of multinational corporations and private foreign direct investments. With the globalization revolution, there were hopes for decreasing the gap between the rich and poor, increasing education, improving the welfare of humanity and the betterment of society; however this hasn’t been the case. With the cultural and economic differences between Western societies and the rest of the world, as well as hungry money multinational corporations it has been difficult to create and maintain a pure version of open economies and free markets. With many developing nations faced with the difficult to improve their economies and obtain necessary resources to economically compete with OECD countries, they are competing to obtain short-term benefits of multinational corporations but not paying attention to the negative consequences.  To obtain these multinational corporations many developing countries are willing to allow multinational corporations influence their economic and political policies, as a result inhibiting the development of local firms and entrepreneurial growth.  With the element of the human nature , culture differences  and competitive world markets, there is a need of regulations on multinational corporations within developing nations that will sustain a free and profitable market. It is the ideals of the traditional neoclassical growth theories, structural change and the concept of international dependence, which we will be able to begin to model an economic structure that will benefit both multinational corporations and the countries in which they operate.

REFERENCES

Davis, Bob. (2008, April 28). Rise of nationalism frays global ties; trade, environment face new    threats; balkanized internet. Wall Street Journal, p. A.1. Retrieved February 18, 2009, from proQuest database.

Smith, C.S. & Todaro, P. M. (2009). Economic Development (pp.124-126). Boston, MA: Pearson Publishing.

Navaretti, B. G & Venables, J. A (2004). Multinational Firms in the World Economy (pp. 1-22).  Princeton, New Jersey: Princeton University Press.

They will continue to report certificates issued on a weekly basis until the full $100 million has been allocated. They expect to complete processing all certificates in August. This tax credit is available for qualified buyers who on or after March 1, 2009, and before March 1, 2010, purchase a qualified principal residence that has never been occupied. The buyer must reside in the new home for a minimum of two years immediately following the purchase date.

Orange County housing is still a tale of two markets. As of June 2, 2009, homes in the conforming loan price ranges (up to $417,000) and jumbo conforming price ranges (up to $730,000) are in a fast-paced seller’s market. As little as 3.2 months of inventory on hand for homes priced under $300,000, and 5.1 months on homes priced up to $899K. Luxury homes priced above $900,000 are in a buyer’s market,at 13.1 months of inventory.

When the Fed increases the federal funds rate, it does not have an immediate impact on the stock market. Instead, the increased federal funds rate has a single direct effect – it becomes more expensive for banks to borrow money from the Fed. However, increases in the discount rate also cause a ripple effect, and factors that influence both individuals and businesses are affected.

 The first indirect effect of an increased federal funds rate is that banks increase the rates that they charge their customers to borrow money. Individuals are affected through increases to credit card and mortgage interest rates, especially if they carry a variable interest rate. This has the effect of decreasing the amount of money consumers can spend. After all, people still have to pay the bills, and when those bills become more expensive, households are left with less disposable income. This means that people will spend less discretionary money, which will affect businesses’ top and bottom lines (that is, revenues and profits).

Interest rates are not the only determinant of stock prices and there are many considerations that go into stock prices and the general trend of the market – an increased interest rate is only one of them. Therefore, one can never say with confidence that an interest rate hike by the Fed will have an overall negative effect on stock prices. Therefore interest rates affect but don’t determine the stock market.  The stock market crash will not have a direct impact on the interest rates because interest rate are not direct determinant of the market.

Source: Prudential California Realty, Orange County: Market Overview ( a monthly real estate report). March 2009.

Source: Prudential California Realty, Orange County: Market Overview (a monthly real estate report). March 2009.