The next foreclosure flipper: Your government

The L.A. Times' William Heisel takes a close look at the federal government's new $4-billion buy-and-flip foreclosure program, under which local governments will get federal money to buy foreclosed houses.

Heisel: "But the program -- included in the landmark housing bill signed by President Bush last month -- faces growing doubts among real estate experts and economists, who point out that the government will now be competing with lenders and private homeowners who have been struggling to sell in a depressed market."

More: "What's more, an analysis by The Times shows that the California communities with the most foreclosures -- and therefore likely first in line for federal aid -- already have a relatively ample supply of affordable housing."

Money quote No. 1: "I'm not sure this is the most cost-effective use of these funds," said Kerry Vandell, director of the Center for Real Estate at UC Irvine. "Sometimes an experiment like this is just that, an experiment. And you don't find out until later that it doesn't really work out too well."

Money quote No. 2: "I think if the government had wanted to buy homes a few months ago, maybe it would have helped, but if they're going to start six months from now or later, it can only hurt," said Pamela Vose of the Greater Antelope Valley Assn. of Realtors.

Commentary: Agreed. I've always thought this program was a mess waiting to happen, and that President Bush was right to oppose it. If bargain-hunters are already snapping up foreclosed properties — and they are, according to this week's MDA DataQuick report on the surge in July home sales — why is it necessary for the government to wade into the housing market? The $4 billion would be better spent on down payment assistance programs for individual buyers.

-- Peter Viles

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com

Photo credit: Getty Images

Comments

[Giacomo]

You can tell by the relatively small budget that this program isn't a serious effort to fix anything. It's just a political gesture, meant to give some soft-headed voters the impression that something is being done about the abandoned houses rotting in the hinterlands.

Like many government programs, it's a waste of taxpayer money, ineffective for its stated purpose and extra-constitutional in its conception.

[Mike]

"The $4 billion would be better spent on down payment assistance programs for individual buyers"

I agree that the government buy-and-flip program is a waste of money, but Down Payment Assistance programs are not a good idea either. Statistics show that buyers who didn't use their own money for a down payment are something like 4 times more likely to default on the loan. The whole idea of a down payment is to show that you're a responsible person, and to provide incentive not to walk away. Someone who can't save enough money for a minimal down payment probably shouldn't be buying a home.

[Nick]

"The $4 billion would be better spent on down payment assistance programs for individual buyers"

Gotta also disagree with you, Peter, for the same reasons as Mike. DPA programs just encourage defaults, as evidence has shown. All the government assistance programs due is drive up housing prices, making houses less affordable for people overall.

IMHO, the $4 billion could be much better spent on, say, forming an independent prosecution to get Sheila Bair to stop her personal crusade to give my money to fraudsters, and hopefully throw her in jail for a very long time. With the money left over, the government could reorganize the FDIC, and reinforce the mandate that they exist to provide a backstop for banks, not a front for a national socialist agenda. Both of those would do more good for the housing market overall than any amount of money the government could spend making housing less affordable.

[mark g]

I suppose Laura Richardson has been preparing for this all along...

[Laker]

"....California communities.... already have a relatively ample supply of affordable housing....."

Very true. But if government could buy all the foreclosed house at wishing lender's prices, this whole housing correction could have been avoided, and Lawrence Yun and shock would be the happiest Realtards on earth...

However, government can't buy all the houses....so price are falling to a level where they meet demand....wow..what a strange concept.
And i also disagree with Peter. The $4 billion dollars should not be used to flip houses, or assist in down payments. It could however be used to compensate responsible renters that DO have down payment as a result of them saving...by reducing their taxes on savings account to at least 15% capital gains levels vs ordinary incomes tax.
What is wrong about giving incentives to good responsible citizens and not helping scumsters, specuvestors, and fraudsters.
Basically, government should no be in the business to spend tax payers money for any commodity. Maybe we should have the government buy all the oil in the world and then sell it to us for $0.17 cents a gallon...like it is being down in Venezuela or Cuba...

[sailor7x]

Give money to people who demonstrate they are responsible? What country do you live in? What color is the sky there? Can I please become a citizen? Anyway the government want this money for obvious reasons. They can buy homes off political donors for top dollar. They can then use the construction companies of other political donors to fix up the houses again paying top dollar. Then they can sell them to other political cronies at a huge discount. Remember, 4 billion to the government is 4 billion to flush down the rat hole as soon as possible.