Thursday, April 03, 2008

Coleman, Senate Foreclosure Bill – Another Misdirected Bailout

This being an election year there is little surprise that the US Senate is on fast track with a stimulus package of tax incentives for homeowners, homebuilders, and investors.

There is no doubt that there is a foreclosure crisis … but the remedy that Norm Coleman and the Senate are developing offers rewards to those that have not been affected.

Congressman Keith Ellison blogged "For far too long this administration has allowed Wall Street to pursue the politics of greed, the true cost of which we can now see in the form of devastated communities, homeless families, and shattered neighborhoods."

How true !

Senator Coleman also recognizes the problem, but his solution is tilted to the un-needy and business interests.
On the overview, the proposals being discussed may look appropriate but ask yourself Ellison’s key question will this "help our families pay their mortgages and stay in their homes ?"

Coleman’s SAFE Act proposal includes a number of ideas that appear to be in the final version being discussed.

The Senate proposal has a price tag of $10.848 with no offsets, so it’s all borrowed funds.

Coleman calls for a temporary expansion of the Net Operating Loss Carryback tax provision to help businesses affected by the housing downturn. That has the largest price tag in the bill at over $6 billion dollars. Who would this help ? Well, if you are a homebuilder who had profits in 2004 or 2005, you could get that tax payment back. (To answer Ellison’s key question will this help our families pay their mortgages and stay in their homes? Nope ! )

Coleman’s proposal to issue $10 billion in mortgage revenue bonds is still in the bill. The devil is in the details as this includes bonds for multifamily rental housing. The key question is who will own the multiple-family rental properties and are multiple-family properties the target that is in jeopardy of foreclosure?

To encourage the purchase of homes already in foreclosure and of homes on which foreclosure has been filed, a $7,000 tax credit for buyers will be available. This is actually less than the $15,000 tax credit that Coleman proposed. Since many foreclosed homes are from speculatively built homes, this is essentially the government (meaning all us taxpayers) offering an incentive for people to purchase -- in other words, the wealthy may get a better deal. Price tag $1.63 Billion.

Lastly, and totally inappropriate, is $1.476 Billion for property tax relief for those taxpayers that do not itemize deductions. This is wrong on so many reasons. First, people like myself who paid off their mortgage and now claim the standard deduction, just got another tax savings … and my home is not about to be foreclosed. Second, property taxes are used to fund state and local governments … what does the Federal Government have to do with that? Also, just because a property is foreclosed, that doesn’t relieve the bank from being liable.

Helping out the banks and homebuilders should not be the objective. The Economic Stimulus Act of 2008 (which I opposed) already included raising the government-sponsored enterprise (GSE) to well over half-million dollar homes whereas the average home is maybe $200,000. The Senate was discussing raising this limit to $730,000.

The Senate bill, as being finalized, will not include allowing bankruptcy judges to affect a contract term … which is too bad as that could have impacted 600,000 foreclosures (Minnesota expects to have in excess of 35,000 foreclosures this year.)

The Senate bill is too expensive and does not help those that need help.

The unwise Senate bill should be put on the back burner while the House moves forward the FHA Housing Stabilization & Homeownership Retention Act. There are many good provisions of this proposal such as affecting owner-occupied principal residences only (no investors, speculators or second homes). Because this is a shared program between borrowers and lenders the $10 billion cost over five years would have minimal downside risk. The potential benefit is between one and two million loans (and helps these families stay in their homes), protect neighborhoods, and help stabilize the housing market. The House bill answers Ellison’s question.

Minnesota’s representative on the House Financial Services Committee is Congresswoman Michele Bachmann. Bachmann touts herself as a fiscal conservative and as such she should be working hard to promote the House bill.

The outcome is easily forecast … the politicians will announce with much fanfare how they’ve heard from their constituents and have responded with a good bill … the question will be which constituent ... the the home-building industry or homeowners threatened with foreclosure ?

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