The Memphis Area Home Builders Association is launching a program that will allow first-time homebuyers to borrow their down payments from the organization’s nonprofit division and repay it from their $8,000 federal tax credits.

Officials at the state’s second-largest homebuilders trade association say the program – the first of its kind in the nation – could jumpstart the county’s sagging new home sales by giving potential homebuyers access to money at closing instead of making them wait for their amended tax returns, which can take weeks or months to receive.

MAHBA’s program has been approved by the U.S. Department of Housing and Urban Development for buyers who qualify for Federal Housing Administration loans up to the $271,050 limit, said association president Stephen Hodgkins and executive director Don Glays.

Hodgkins and Glays said MAHBA has allocated $800,000 to its nonprofit arm, MAHBA Foundation Inc., so it will be able to handle 100 of these new loans at any one time. Once a loan is repaid with a buyer’s tax credit, the account is replenished for another applicant.

“This means Memphis Area Home Builders Association (members) can sell homes by loaning people their down payment so they can get in basically for no money down,” said Hodgkins, owner of Oaktree Homes LLC. “But that (loan) is to be repaid by the assignment of their tax credit.”

Moving money around

The American Recovery and Reinvestment Act of 2009, aka the stimulus bill, earlier this year established the first-time homebuyers tax credit of $8,000.

The program was geared for anyone who has never owned a home or who hasn’t owned one within the past three years. It provides the credit to first-time buyers who close a loan on the purchase of their principal residence between Jan. 1 and Nov. 30, 2009, and the money doesn’t have to be repaid unless the recipient moves from that home within three years.

The only problem with the program, many homebuilders have argued, is the tax credit takes awhile to arrive after a buyer files an amended tax return. Builders said not “monetizing” the tax credit at closing has made it ineffective.

“I think (buyers are) looking at the $8,000 tax credit and saying, ‘Gosh, if I could somehow use that as part of the down payment, then I could surely buy a home,’” Glays said. “Unfortunately, the way the system is, you can’t get the money until you close. All we’re doing is bumping up that by a couple of weeks so (clients) can access that tax credit for closing.”

The MAHBA program was the brainchild of Glays, who was dismayed to see the seller-assisted down payment program disappear last year. The new rules said buyers couldn’t borrow their down payments and secure them with the property they were purchasing.

But Glays began researching HUD rules and found out that an “anticipated tax credit” was exempt. “Under HUD rules, any anticipated cash coming in can be used as part of the qualifications for underwriting a mortgage,” he said.

This program doesn’t secure the down payment with the property, but rather with the assignment of the tax credit. Glays said if you know you’ve got money coming in from any source, “you can get a mortgage on the premise that you’re going to get that money and it’s going to be liquid for you to use.”

Greater liquidity

Anyone who qualifies for the first-time homebuyers tax credit and who is buying a home from an MAHBA member qualifies for the association’s down-payment loan. The tax credit does have income limits and other restrictions.

MAHBA will assess a $500 service fee for the loan, including the paperwork needed for the amended tax return and bank account setup to handle the arrival of the $8,000 tax credit.

On Friday the organization approved a change to its bylaws regarding the program and also appointed a committee of five trustees to oversee it.

The committee includes chairman Pat Mahoney of Remodeling Consultants Inc.; Clyde Patton of Patton, Taylor & Ryan; Tim Wilson of Tim Wilson Cos. LLC; Mark Miesse of Nashoba Escrow Co. Inc. and Mark B. Miesse & Associates PC; and Mike Ritz, a retired banker and current county commissioner.

The committee will review all applications and grant the down-payment assistance through the foundation’s $800,000 endowment.

MAHBA plans to spread word of this program with other homebuilding associations around the country, perhaps helping get money into the hands of buyers nationwide who might not otherwise be able to buy.

“We’re going to share this policy with our colleagues around the country and through our national office, and, hopefully at the end of the day, everybody can do this,” Glays said.

Added Hodgkins: “I think it’s going to become widespread. But we’re the first and we’re going to be the model for everyone else.”

Digging out

The program comes at a time when the industry is reeling, and the most recent numbers don’t paint a better picture. Shelby County saw just 28 new home permits last month, a 71.7 percent decline from 99 permits in April 2008, according to real estate information company Chandler Reports, www.chandlerreports.com.

The average square footage for permits in April was 2,623 and the average value for permits was $167,190.

Kevin Hyneman was the top builder in terms of number of permits with five, which averaged 1,699 square feet and $136,000. Sutton Place in Cordova and the Villages at White Oak in Arlington were the top subdivisions with five permits apiece.

Also, Arlington’s 38002 and Cordova’s 38016 ZIP codes led Shelby County with 10 permits each for the month. Arlington’s permits averaged 3,574 square feet and $218,277; Cordova’s permits averaged 1,912 and $151,056.

As for sales, builders sold only 39 homes in Shelby County last month, a 69.8 percent decline from 129 sales in April 2008 and a 53.6 percent decline from 84 sales in March.

Builders’ sales in April averaged $240,698, down 20.1 percent from $301,116 in April 2008 and down 5.8 percent from $255,486 in March. The total sales in terms of dollar amount last month was $9.4 million, a 75.8 percent decrease from $38.8 million in April 2008 and a 56.3 percent decrease from $21.5 million in March.

Chandler Reports is a division of The Daily News Publishing Co.