HUD Guidance Coming on Tax Credit 'Bridge Loans'

The Department of Housing and Urban Development soon will issue guidance enabling FHA-approved lenders to provide short-term "bridge loans" to borrowers who are eligible for a one-time $8,000 first-time homebuyer tax credit. HUD issued a mortgagee letter on May 12 outlining a program that enabled borrowers to use tax credit funds toward downpayment and closing costs. But HUD took the letter off its website a few hours later — after the Office of Management and Budget objected. Apparently HUD had not consulted with OMB officials on the issue. Meanwhile, HUD has drafted new guidance that is expected to be posted any day now, according to sources. HUD secretary Shaun Donovan told the National Association of Realtors on May 12 that FHA approved-lenders, nonprofit housing groups, as well as state and local government entities would be permitted to "monetize the tax credit through short-term bridge loans." HUD expects these bridge loans will help more borrowers to become homeowners. The department also wants to prevent lenders from abusing the program by charging FHA first-time homebuyers excessive fees and rates.