Vermin’s Market
Today the U.S. Senate passed, by a remarkable 84 - 12 margin, a “Foreclosure Relief Bill” sure to be enshrined as one of the dumbest pieces of legislation to be passed by this legislative body. They may has well have nicknamed it the “Kick Them While They’re Down Bill”. If signed into law, it will actually worsen the mortgage crisis currently plaguing the nation, and sink the economy deeper into recession.
The primary measure of idiocy contained in this legislation is a provision that gives a $7000 tax credit to anyone purchasing a foreclosed home. If you gave me a year to figure out the absolute worst possible means of government intervention for the mortgage crisis, I could never have come up with something so sinister and downright offensive. This is the Smoot-Hawley Tariff Act of the modern era.
Three principles at work here. First, it will embolden any fence-sitting bottom-feeders eager to try their hand at the late-night-infomercial “Make Millions In Real Estate Buying Foreclosed Properties!” scam, as if there weren’t enough of them already. Second, it will remove any incentive for banks to negotiate settlements with existing homeowners to prevent foreclosure if that homeowner has equity. And finally, it will further depress the already abysmal housing market, erasing any market equity built since the 1970’s.
Create a new tax incentive, and hundreds of thousands of tax scofflaws will find ways to exploit it. In this instance, it will be the fly-by-night slumlord vermin swooping in to grab up foreclosed properties in depressed neighborhoods, only to rent those same properties back to the original owners for rates higher than their mortgage payment was to begin with! A tax incentive of this nature will have hundreds of these ambulance-chasing losers lining up outside the assessor’s office every Monday morning, looking for the latest round of victims whose lives they can ruin. It’s bad enough we have these vermin at all; giving them an additional tax incentive will multiply their numbers exponentially, like giving a pack of rats a bottomless dumpster to eat from.
And with thousands of these new parasites barking at the heels of each default, the banks will be more confident to proceed with foreclosure on any homeowner with equity. Banks will want to make accommodations for homeowners that are upside-down. The bottom-feeders don’t want those properties, they require too much down and the loan makes profitably renting the property unfeasible. Therefore if the bank forecloses it will be years before they can sell the property without losing their shirts. But a homeowner with $100K in equity on what was a $300K home that’s lost $75K of its value, that’s a foreclosure vermin’s dream come true. As it presently stands, with a depressed market and the vermin largely on the sidelines due to tightened credit, the banks have incentive to make arrangements with the current owner that would keep them in the home. But if this bill passes, the bank will know that there will be a hundred buyers ready to snap that property up the minute it becomes available. That means they won’t hesitate to foreclose, and the property owner with $100K in equity will watch that go up in smoke — all because the U.S. Congress decided it wanted to reward the vermin.
Finally, the primary home sale market will switch from the open real estate market to the filing cabinets of the banks and assessors’ offices. Why buy on the open market when you can get a similar home through a foreclosure for the remainder on the loan plus back taxes? Anyone entering the market when fully 25% of the houses in existence are being foreclosed would be foolish to enlist the help of a real estate agent. Wander into your local bank and do some research: it will amount to a half-price sale on most of the neighborhoods everyone wants to buy in, and even better deals on the markets that are less coveted. All of a sudden it’s gone from a buyer’s market to a vermin’s market. Nobody will be able to sell through traditional channels, prices will plummet, thousands more homes will go into foreclosure, and millions more lives will be ruined.
As you see, this legislation is the dumbest idea since the war in Iraq. It will guarantee a more lengthy recession, and depending on the extent to which the employment numbers are affected, I may even go so far as to use the “D-word.” Fortunately the House is drafting more reasonable legislation with this provision removed as well as adding other more consumer-friendly changes, and hopefully that version will emerge victorious from the Joint Committee. We can only hope that somebody with two brain cells to rub together has the sense to see the end result of this bill. But if not, it will be the first time in Bush’s presidency that I will actually be in support of a veto.
