WASHINGTON -- For the housing market, it's the equivalent of financial alchemy, and it's hot: Turning the $8,000 federal home-purchase tax credit, which normally isn't spendable until after you've gotten your refund, into immediate, hard cash today, available for your down payment and closing costs.

Congress' stimulus-bill tax credit for 2009 is generating efforts nationwide to find ways to "monetize" it -- providing money upfront to buyers who need dollars for down payments right now, not next year after they file their federal returns and get refunds. The credit is only available to qualified taxpayers who have not owned a house during the previous three years, and who close by Nov. 30, among other requirements. Buyers can amend their 2008 returns to claim the credit or claim it on returns for 2009.

In recent weeks, at least 10 states say they've come up with ways to work this monetary magic. They have created innovative bridge-loan programs that advance credit-eligible purchasers the cash they need for their closings. Generally the advances take the form of second mortgages -- with or without interest charges -- that become due and payable whenever purchasers receive their credits in the form of refunds from the IRS.

In Missouri, which was the first state to create such a program, buyers can get a no-cost "tax credit advance" of up to 6 percent of the home price. The advance is actually an interest-free second lien that is repayable no later than June 2010, once the buyers have received their $8,000 tax credit.

If buyers can't meet that repayment deadline, the advance morphs into a traditional second mortgage with a 10-year payback term and a fixed interest rate one-half a percentage point higher than their first mortgage rate. The underlying first loans are all fixed-rate 30-year mortgages issued by private lenders participating with the tax-exempt bond programs of the Missouri Housing Development Commission.

Colorado kicked off a similar program, known as "JumpStart," April 14. Delaware, New Jersey, Tennessee, Idaho, Washington state, Ohio, Pennsylvania and New Mexico have come out with their own versions, some with modest interest charges on the second mortgage from the beginning.

In Washington, where the state Housing Finance Commission already runs a tax credit bridge-loan program for buyers using its mortgages, state Treasurer James McIntire wants to make it much bigger. He has been pushing for creation of a "public-private" down payment program that could reach far larger numbers of consumers than is possible under the housing commission's current funding constraints. Continued...