Housing Stimulus Bill Has Little Help for Homeowners

Pete Davis at Capital Gains and Games:

Housing Stimulus Bill to Pass the Senate Next Tuesday With Hardly Any Help for Homeowners, by Pete Davis: Yesterday afternoon, the Senate cleared the way to pass a $14.9 b. housing stimulus bill ... that won't stimulate housing much. They did that by killling Senator Durbin's (D-IL) amendment to give bankruptcy judges the power to rewrite first mortgages. That was a deal-breaker for the mortgage lending industry. It was also the only thing that might have helped those facing foreclosure, albeit as the cost of raising future mortgage interest rates for the increased risk that future mortgages might be written down.

The real beneficiaries of this bill are the housing industry. Homebuilders and other firms that support housing, including the mortgage lenders who brought this crisis on us, will get ... instant cash..., and a lot of it: $1 b. by the end of September, $16.7 b. in fiscal year 2009, and $7.9 b. in fiscal year 2010.

Those facing foreclosure get no instant cash. They get a measly $100 m. of additional counselors to talk to. Those counselors have been woefully unable to stem the tide of at least 2 m. foreclosures so far. Last night, the Senate voted down Senator Murray's (D-WA) amendment to add another $100 m. for counseling.

The bill also contains a $10 b. increase in the cap on state revenue bonds so states can buy up foreclosed homes. Another $4 b. would go to state and local authorities to renovate abandoned and foreclosed homes.

A tax credit of up to $7,000 would go to new homebuyers of foreclosed homes or homes that have just been built. This was Senator Isakson's (R-GA) proposal, S.2566, the centerpiece of the Republican's part of this bill.

Finally, non-itemizers would get to deduct their property taxes for this year up to $500 for singles and $1,000 for couples, but only if those taxes are not increased during the rest of this year. Republicans hope to extend this and make it permanent in the future. ...

You might ask why the Senate is doing this? Well, they don't have a lot
of money with the deficit rising so fast, and that's as much as they think President Bush will sign. Many Senators in both parties want to help homeowners facing foreclosure, but they can't muster the votes to put them ahead of the housing industry. Homeowners facing foreclosure don't get to as many senatorial fundraisers as those in the housing industry do.

While I agree with the suggestion that we need to do more to prevent foreclosures, I'm not sure I agree that giving judges the power to rewrite mortgage contracts is "the only thing that might have helped those facing foreclosure." For example, a timely HOLC program would also do this. The other quibble is with the statement that rising deficits are an obstacle to fiscal policy. The quibble isn't with the suggestion that the size of the budget deficit causes politicians feel constrained in their ability to formulate policy, it's with the idea that the budget deficits of the magnitude we currently have should constrain our ability to help.

Comments

[hari]

US fiscal deficit is likely to become a serious subject of discussion between EU and US policy makers under next Admin.
The reason is simple, for EU, there is an objective policy guideline to member countries when nationa deficits exceed the 3%, and their actions are monitored by Eco-Fin which inculdes all finance ministers. France is a good case in point right now. Unless there is adequate symmetry on this fiscal issue, gowing forward with policy collaboration will find all sorts of regulatory constraints.

Current global financial constraints, according to local experts, are not going away soon, and may last more than two years or so.

[ken melvin]

Stimulate housing construction? Are they nuts?

[anne]

http://www.nytimes.com/2008/04/05/business/05charts.html

April 5, 2008

Across the Globe, Hints of More Perils in Housing
By FLOYD NORRIS

The International Monetary Fund warned this week that home prices in other industrial countries were even more overvalued than in the U.S.

[save_the_rustbelt]

"They did that by killing Senator Durbin's (D-IL) amendment to give bankruptcy judges the power to rewrite first mortgages."

98% or so of foreclosures are done in county common pleas courts and get nowhere near a bankruptcy court. Changing the bankruptcy rules would have almost no impact on the foreclosure problem.

Why don't politicians and economists and journalists and bloggers understand this? Why don't they do some homework?

When your car has a flat tire, you do not change the spark plugs.

Ken: yeah, let's build some more houses, especially in hurricane and forest fire zones - yes, they are nuts

[odograph]

There are two condos for sale in my complex right now. One is a foreclosure, and one is not. Didn't this bill just take $7K out of the non-foreclosure guy's pocket?

(I think any HOLOC this crew had drafted would have been expensive for us all.)

[anne]

Mark Thoma:

"I'm not sure I agree that giving judges the power to rewrite mortgage contracts is 'the only thing that might have helped those facing foreclosure.' For example, a timely HOLC program would also do this. The other quibble is with the statement that rising deficits are an obstacle to fiscal policy. The quibble isn't with the suggestion that the size of the budget deficit causes politicians feel constrained in their ability to formulate policy...."

Precisely; but even Barack Obama's supposed economic advisers are selling the idea of the constraint of deficits while advising cutting taxes and adding 100,000 soldiers to our forces. Looking to the New Deal for policy understanding is beyond us collectively, though not beyond Bernanke or (shudder) Hillary Clinton's advisers.

[anne]

Increasing Obama is showing us in developing economic policy stances that a move to universal health care will be considered impossibly costly. I am more than merely disappointed.

[odograph]

Isn't the judges and bankruptcy thing "the only thing" that will exclude free-riders?

[save_the_rustbelt]

Isn't the judges and bankruptcy thing "the only thing" that will exclude free-riders?

Yes, but only if we steer millions of homeowners into bankruptcy court, which will cause a jam of Herculean proportions (come to think of it, maybe that is a sneaky way to slow down foreclosures).

[space monkey]

odograph says...
"Isn't the judges and bankruptcy thing "the only thing" that will exclude free-riders?"

Yes, it would be targeted to the actors involved in the original mess (compared with the HOLC which would spread the cost to all tax payers) but the administrative costs (plus the fact that lawyers are the ones who benefit most from the cram-down legislation) make it a tough pill to swallow.

Think about the negative externalities of multiple foreclosures in a neighborhood. . . amplified to the level of frozen credit markets. We are all involved so we will all have to pay.

But for the life of me I don't understand how helping the homebuilders would solve anything.

[odograph]

If you've "got" to break a contract, because you can no longer afford it, I think bankruptcy court is where you ought to be.

Indeed, broader mortgage bailout plans might be generalized, socialized, forms of bankruptcy adjustment - and again generalized in a way sure to attract free riders.