A "no" vote on homeownership incentives

In the bad idea category, file the "proposals for a new $22,000 home buyer tax credit, legislation overturning the ban on seller-financed down payment programs and calls for a federally financed interest rate buy-down on mortgages," say the National Multi Housing Council (NMHC) and National Apartment Assn.

In a statement released today on behalf of the trade and lobbying groups' Joint Legislative Program, NMHC President Doug Bibby said:

"We understand the desire of lawmakers to bolster the economy and stem the tide of foreclosures, but new home buyer tax credits, seller-financed down payments and interest rate buy-downs will not stimulate the economy or stop house prices from falling further. They are simply bailouts for the for-sale housing market, the very sector of our economy that helped trigger the global economic crisis.

"The only issue a home buyer tax credit addresses is the oversupply of single-family houses, which is something best left to the marketplace -- not taxpayers -- to correct. Oversupply situations happen in every industry, and the housing industry will recover with or without Congressional action, just as it has in past oversupply situations. Moreover, why should taxpayers help out an industry that recognized a downturn was coming and still kept overproducing?"

Details and frequently asked questions about the proposed incentives are at NMHC's website. More battle lines being drawn.

--Lauren Beale

Thoughts? Comments?

Photo: The courtyard of the Broadway Village II apartments in South Los Angeles. Credit: Gary Friedman / Los Angeles Times

Comments

[Cal]

"Moreover, why should taxpayers help out an industry that recognized a downturn was coming and still kept overproducing"

But enogh about the auto industry.. what do they think about housing? ;-)

[Nick]

Holy carp, it's a RE-related industry spokes-shill making sense! That was rational, factual, and blatantly informative (still self-serving, of course, but that's expected from industry shills). What's next, dogs and cats living together?

[Rational Renter]

Wow, who would have thought it? Someone actually speaking the truth. House prices won't stop falling, no matter what kind of programs/incentives/bailouts we throw at the "problem." It's a CORRECTION. The problem was the bubble pricing. He doesn't really identify the root of the problem - it's not an oversupply of inventory, but rather inflated prices that don't match affordability levels. When prices fall to match incomes, the inventory will take care of itself. It's a symptom, not the problem.

[Laker]

Very good arguments and most are correct such as "The real problem, then, is not the price decline, but the previous price explosion…"

But....what is their agenda??? To keep many renters from buying and leaving the rental market so that landlords will have huge vacancies and go belly up???
Think about it.
Did i mentioned that i was offered a similar house that I'm currently renting for 40% less that my current rent....
I'm thinking about the way to tell this to my current landlord...without pissing him off.

[Rational Renter]

L.A. Land, please run an article on this story from BusinessWeek - http://www.businessweek.com/the_thread/hotproperty/archives/2008/11/modifying_mortg.html?

The author very concisely and clearly makes the point why house prices won't stop falling, that they have 15-20% left to fall nationwide (to say nothing of worse cuts to come in California), and that all bailout attempts are wasteful and fruitless.

[Nancy]

I bet the National Apartment Assn is excited about all the former homeowners that foreclosures are bringing to the rental market. Plus with fewer people able to buy, it will send rental prices up!

[Laker]

Nancy : "...with fewer people able to buy, it will send rental prices up! ..."

Nancy,
Keep dreaming rent prices are falling almost as fast as house prices...
People are moving out of LA and CA in droves. Check UHAUL for one way moves from LA to Texas and Texas to LA....

[fastball528@yahoo.com]

RR - The Business Week article is well-intentioned but short-sighted in its assumption that without interference the market will naturally correct itself and (perhaps) not drag down the rest of the economy. Home mortgages are one of the most important components of our financial system; if not the spine, at very least a leg.

By adopting more conservative/traditional underwriting guidelines a dramatic recovery is doomed; as is any effort by the Fed to stem the tide. After all, rising unemployment doesn't instill confidence in anyone. America is best served by keeping its citizens employed. After all, the American Dream isn't owning a home, it's having a j-o-b.

[Jeremy R]

I have a general question for you housing experts.

If almost all banks sold their mortgage products instead of holding onto them, why do so many banks have mortgage debt on their books? Didn't that debt get sold off to investors?

Secondly. If am BofA and I lend Suzie 400k to buy a home, and then sell that mortgage to Fannie Mae, what happens when Suzie Forecloses?

In most cases, it seems that BofA takes control of the home, not Fannie Mae. Well if BofA sold it, why is it BofA's problem?

I remember people saying that private banks were giving out 100% financing because they were selling the mortgages anyway and didn't care if the person walked since the bank no longer had a stake. If that is the case, I would think that 90% of the foreclosed home would be owned by investors, Freddie, Fannie, and HUD, not privatve banks.

Am I wrong?

[dacolan]

fastball528 wrote:
"By adopting more conservative/traditional underwriting guidelines a dramatic recovery is doomed; as is any effort by the Fed to stem the tide. After all, rising unemployment doesn't instill confidence in anyone. America is best served by keeping its citizens employed. After all, the American Dream isn't owning a home, it's having a j-o-b."

By refusing to adopt more conservative/traditional underwriting guidelines would be to throw more gasoline on the current conflagration.

These (old) underwriting guidelines will make sure fundamental relationships like price:income ratios return to traditional, historical norms. Affordable housing is good for everyone.

[Nick]

To Jeremy:

Based on my understanding (as an outside observer), here's what happens. First, it's not an all or nothing thing: banks keep some loans and sell others. Conceptually, if the loan was "safe" you kept it, and if you knew it was too risky but you got an origination fee, you did it anyway and immediately sold it to investors or the government.

The problem for banks is that as the bubble pops, all prices are declining toward rational values. This means loans which were previously "safe" (eg: 20% down, good credit, etc.) are now possibly underwater. The smaller banks with actual relationships with their customers are more apt to be ok, but the big banks relied on statistics which didn't account for a mass decline of prices (because they ignored the risk). Hence the large-scale failures and bailout efforts now.

The other thing which is happening is that the GSE's/HUD don't always buy the loan, they just insure it. That means the bank collects if the buyer defaults, but the bank still gets the property to resell also (and the GSE/HUD pays the difference between the loan value and the sale price). This is why banks still get a lot of foreclosed properties, and why they are not always eager to offload them (because they are not paying the losses for holding them, we the taxpayers are). A complete lack of responsible GSE/HUD oversight ensures that their failures will be taxpayer losses.

Hope that's accurate, and helps. :)

[Laker]

Jeremy R,
The answer is that yesterday Fannie and today Freddie reported that they lost $25 Billion dollars each....
The commercial banks were reporting losses of $3-5 Billion.

So as nick is saying, We the tax payer have to foot the bill.
Eat it and say that you after you're done.

[fastball528]

I wasn't arguing against the merits of traditional underwriting. My point is that it's foolish for the author of the article to believe that we can "ride-out" the unwinding of the mortgage mess without significant impact to the economy at-large. Instead, I'd argue that the extreme lengths taken to artificially extend the market boom (a la Greenspan) require proportionately radical measures to avoid collapse (literally).