Industry Professionals Suggest 'Buy-Downs'

National Association of Home Builders, suggests rate reductions of 2.99 or 3.99 percent along with income tax credits

By: Larry Dunn Several mortgage subsidizing proposals are circulating for the new Obama administration to consider to alleviate the housing crisis and stimulate the housing economy, reports a Washington Post article. Proposing "buy-downs", the National Association of Home Builders, suggests rate reductions of 2.99 or 3.99 percent along with income tax credits to stimulate new housing construction and housing sales. The substantial National Association of Realtors proposes 3-year fixed rates that are reduced from prevailing rates by at least 1 percent or more. Buy-downs are rate subsidies typically used by the seller to cover points of the interest rate by paying the lender. Traditionally, explains Wells Fargo Home Mortgage principal, John Paul Nicolaides, Red Bank, N.J., the seller would pay one point (percent) of mortgage amount of every quarter point of interest rate reduction to the lender. Supported by both the builders and realtors, the buy-down proposals could cost the federal government some $130 to $140 billion, explained David Ledford, principal with the National Association of Home Builders.