Foreclosures - A Hint Of Encouraging Foreclosures In The Much Touted Relief Bill

Encouraging Foreclosures

April 9th, 2008

Unbelievable but true – despite much hype and platitudes the Foreclosure Prevention Act of 2008 smacks of encouraging house foreclosures. This bill that has involved both Republicans and Democrats includes measures that instead of stopping foreclosures might push it forward. Anybody who purchases a foreclosed unit within a year of the enforcement of the bill will avail of a tax credit of $7,000. The idea is that this will reduce the number of abandoned foreclosed houses waiting to be owned. With sales thus going up the expectation is that the real estate market would get back on its rails. Apparently everything seems logical and clear. But there is more to it than meets the eye. Foreclosures are money, energy and time consuming. Banks, right now, are averse to repossessing foreclosed units after having failed to sell these off in court auctions. Now if it becomes cheaper to buy a foreclosed house than a non-foreclosed one then the options for the buyer are quite straightforward. Costs of foreclosures go down and benefits go down. Lenders will now be in a hurry to foreclose rather than work out negotiations with borrowers. It comes down to getting the house owners evicted. At a time when the nation is struggling to find out ways and means to keep the common man from the streets this is hardly the time to introduce perverse encouragement to lenders – not even if it is minimal. The 41.6 billion tax credit will work at cross purposes with the money ($100 million) the Senate has sanctioned for increasing the strength of foreclosure counseling agencies. Another more objectionable clause in the bill is the $6 billion tax relief to those in the construction industry. This was done under pressure from the building lobby that threatened to withdraw financial support from the election campaign. Thus the bill is dotted with questionable handouts to this or that section. For instance property taxes up to $500 will be waived for single owners and $1,000 for couples. In all probability most of these 28.3 million who will benefit are seniors who do not have any mortgages. This may be considered a comfortable ad-on but hardly touches the main issue of helping people stay on in foreclosed houses and not spill out on to the open streets. The bill also allows the states to sell $10 billion tax free bonds to subsidize refinancing. It is a proved defective non-performing method of solving the problem.