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Nevada is one of the “sand states” which has experienced a serious crash to their housing market, along with Arizona, California and Florida. Those four states – along with the depression state of Michigan – accounted for a majority of all foreclosures and value loss on mortgages. You can even pinpoint 35 counties with the majority of foreclosures, and almost all of those counties are in the four sand states. So housing policy and foreclosure mitigation for those states will look different than for the rest of the country. And that’s the backdrop for sand-state Senate Majority Leader Harry Reid pushing a crazy policy to extend the home buyer’s tax credit, which does nothing but prop up the housing market.
Home buyers hoping to take advantage of a lucrative federal tax credit would get three extra months to complete their purchases under a proposal introduced in the Senate on Thursday.
Senate Majority Leader Harry M. Reid (D-Nev.) co-authored a proposal that would allow those eligible for the tax credit to close on a home by Sept. 30 to give lenders more time to process a crush of applications.
Reid and his co-sponsors hope to attach the measure to a separate bill moving through the Senate that would extend a variety of tax breaks as well as emergency unemployment benefits. But even if senators succeed in attaching the tax-credit initiative, Democrats are still struggling to assemble the votes needed to pass the overall tax bill.
The home buyer’s tax credit ended on April 30, but the deadline for closing on those transactions was June 30. This would extend that closing date, ostensibly because of application processing, to September 30.
While the sales have already been made, and this would just extend the processing, handing out this money to incentivize home purchases, basically to keep prices from bottoming out, is bad public policy. Moreover, it will encourage tax fraud on a large scale:
The danger is that this extension would also give more time to people who are merely pretending they were under contract in April and intend to backdate their documents.
Some real estate brokers see signs of dubious behavior. Glenn Kelman, chief executive of Redfin Corp., a Seattle-based broker that operates in nine states, says he started to wonder if tax fraud was on the agenda after hearing from some customers who were very insistent on closing by June 30 even though they went under contract after April 30.
Schahrzad Berkland, an agent for Fidelity Pacific Real Estate in San Diego, who helps produce analyses of that market, found that the number of homes listed as pending sales agreed upon in April continued to rise over the past few weeks. Normally, that number should decline as some deals fall through. Ms. Berkland thinks some buyers are backdating to April.
The IRS is aware of and investigating the backdating issue, but they’re not likely to catch everyone. And we know that unscrupulous mortgage brokers exist, who would love to dangle the carrot of a big tax credit at prospective buyers, backdating the sale to ensure it.
Who does this help? Well, it certainly won’t hurt the depressed housing market in the sand states. If more sales result from a big tax credit, maybe construction goes up, or lending, and the economy stabilizes. Harry Reid, running for re-election, certainly wouldn’t be upset about that. It also helps people with enough money to buy a house, many of whom would have purchased housing anyway, if not at that particular time.
So we have bad policy, encouraging criminal behavior and sending $30 billion or more into the hands of the moderately well-off, for the purpose of blowing some air back into the housing bubble. Yuck.
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Just to clarify, $30 billion is not the cost of extending the closing deadline. The biggest number I’ve seen is 180,000 people might be affected which would cost around $1 billion.
BTW Calculated Risk said that over the life of this program at least 5 out of 6 buyers would have bought a home anyway.
yes, I was talking about the whole policy.
d
Meh. What? We can only shore up the ultra-wealthy or the indigent? Everyone’s hurting. If you haven’t seen Vegas recently (assuming you have a early ’08ish frame of reference for comparison) … they can use all the help they can get.
I don’t think being able to purchase a stucco prefab qualifies one as “moderately wealthy” and worthy of scorn for getting some assistance. This seems like it would help the middle class and put some folks to actual work (or at least spur retail as the homes are appointed). And maybe put a few good mortgages into the mill to compete with all the bad.
Or am I missing something here?
Imagine how low home prices would be by now if the banks were not holding inventory off the market. And if the government had not taken over mortgage lending. And without the 8K tax credit. And without 99 weeks of unemployment checks. Well, that’s how low they will be when all that shit is over. Because stimulus is the only thing giving the appearance of life to our so called economy.
Reid is interested in the same things that every other politician is interested in these days: re-election to fund raise and fund raising for re-election. That’s all they care about. That’s all they do. NEED, legitimate or otherwise, doesn’t have a place in the equation.
A big reason these areas are hurting the most is that home prices escalated at unsupportable rates in a short period of time and the big builders kept building to feed the speculators appetite for a fast buck. When the recession hit, these areas had farther to fall and all the speculation outstripped the real owner occupied demand for housing. It was a false housing economy for quite awhile before the economy slowed. It was built on fantasy. Couple that with the corrupt mortgage lenders that compiled loan applications that were pure fiction and it wasn’t even a gamble. It was a sure to fail big time scheme to line the pockets of the players. There should be thousands of prosecutions, but don’t hold your breath. Lenders that won’t restructure loans where the ability to pay exists with the borrower should have pressure put on them by the government. There banks make their money in American communities because Americans support them. They should do what they can to assist homeowners with viable options to keep their homes. In the long run, it is also a better and more profitable business model for the banks. The banks need to look beyond the current quarter.
So…. is that a good thing or a bad thing?
The government could have taken over the entire mortgage market (and not let banks dump the lemons and keep the lemonade for themselves) and dropped everyone into a 2% fixed, 30 year loan while offering the same rates for new mortgages. Uncle Sam could have borrowed the necessary funds from the Fed interest-free (just like it did during World War II when it ran the GDP equivalent of $4 trillion annual deficits).
Instead the Fed has pumped trillions into the banks, and the bailout is ongoing. Banks are allowed to borrow from the Fed at 0.25% and then turn around and lend it to the US Treasury at 3.5%. As Jon Stewart put it, Uncle Sam is the worst loan shark in the world.
Its a bad thing. But other bad things made it inevitable. So all the money spent trying to avoid it was wasted.
If you haven’t realized by now: the Fed isn’t there, doesn’t exist, to help the working class. It exists to help the “too big to fail banks” literally. That’s why it was created.
Stop making sense! Government intervention can had negative ramifications and unintended consequences. Who knew?
You can’t lay the blame solely on the backs of lenders. What about the house-flippers and other such speculators? They gambled and lost. They should not have the opportunity to be bailed out.