New Foreclosure Prevention Legislation Designed to Bail Out Big Business

BY PAT SUMMERS

After going on a two week vacation in the middle of one of the largest credit crises the U.S. has ever faced, our Senators returned to write a dreadful and unethical housing bill that will help homebuilders and the mortgage industry at the cost of taxpayers.

There are so many horrendous ideas packaged into this plan that it is hard to pinpoint just which one is the worst. A little publicized provision that might top the list involves a huge tax break for homebuilders and every other corporate entity involved in the business of building, selling, buying and financing houses. (In case you are wondering, that includes Wall Street banks and financial institutions.)

Under this barely concealed bailout provision, big businesses--some of whom are partially responsible for this whole mess--will be allowed to deduct current losses against taxes paid in the last four years. The provision will cost the U.S. government an estimated $28 billion between now and 2010.

The National Association of Home Builders (NAHB) desperately wanted this provision put into Bush's economic stimulus package, but the group was unable to get lawmakers to agree at the time. When they didn't get their way, the NAHB announced it would stop making financial contributions to congressional candidates 'until further notice.'

One could speculate that the NAHB's threat to cut off the gravy train worked out for them. In addition to the carryback provision, builders will also benefit from another part of the bill which issues a $7,000 tax credit to buyers who purchase a newly built home, a foreclosed home or a home whose owners are in default. This provision will cost over $1.6 billion if the estimated 240,000 buyers benefit from the credit.

Good news for banks and builders, but it is more than a little unfair to the poor, responsible saps that have paid their mortgage payments faithfully over the years. These people are already being forced to compete with the vast new home and foreclosed home inventory that has flooded the market. If the bill passes, the competition will be even harder to win.

Banks will also benefit from a part of the plan that issues $4 billion in grants to local governments who want to purchase and refurbish foreclosed properties. If that weren't enough, mortgage servicers will have the benefit of being able to transfer risk to the taxpayers through the Federal Housing Administration. The bill will permanently raise the limit for loans backed by the FHA to $550,000 and allow homeowners to borrow 110 percent of an area's median home value versus 95 percent.

Although the giveaways businesses will receive from the Foreclosure Prevention Act of 2008 far outweigh the benefits struggling homeowners will receive, the government is throwing plenty of money their way as well. A whopping $100 million will be allocated to programs that offer mortgage counseling. Not surprisingly, there are no reliable estimates yet as to how many (if any) foreclosures this will prevent.

There is one thing that can be said for sure though: the government is sneaking a multi-billion bailout under the noses of taxpayers with the hope that it will be perceived as a foreclosure prevention plan. The worst part is that they will almost definitely get away with it once again.