The election is coming up in a few days. Has all the bull$hit being thrown around left you dazed and confused? I got a call from Robo-Bill Clinton today. I felt so special. I am planning to sit down with my California General Election voter information guide this weekend and make up my mind on how I plan to vote on the various initiatives. Since the topic of the weekend is politics, I thought it would be good to explore some of the politics of the housing bubble.
There are many ideas floating around the blogosphere regarding what can and should be done about the housing crisis. I have received a couple of emails recently from people with ideas on changes to our current system. One is from a local realtor named Shevy Akason who is championing legislation that would help the flagging housing market and get it on more solid ground (His blog is here). This isn't a bailout, and although I think there are some issues, it is a proposal worth examining:
Homeowner taxpayer relief act.pdf
The proposed bill adds provisions to the current IRS code that allows for SEP IRA deductions outlined in IRS Publication 560 to be expanded to cover HEA (Home Equity Accounts). The bill will allow prospective homeowners to put money into a designated HEA (Home equity account). This money must be used for the down payment or closing costs on a primary residence. In addition, this legislation will allow current homeowners that have less than 50% equity to place money into an HEA account designated for homes they purchased after January 1, 2000 and before Jan 1, 2009 or 180 days after this legislation takes affect, whichever is later. Finally, it allows current homeowners that participate in this program and remain current on their mortgage to go back as far as 2000 and claim an income tax deduction on any money paid toward the principle of their home including their original down payment. To participate in this program homeowner must be in or re-finance into a fully amortized fixed rate 1st mortgage. The legislation should take affect immediately upon passing and be limited to 360 days with options for extensions.
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Above is merely the summary. The PDF contains more information. It is an interesting proposal. Personally, I like the idea of a tax advantaged savings account for downpayments. However, I don't believe expanding our subsidization of real estate through the tax code is a good idea. We already oversubsidize real estate with the home mortgage interest deduction. Encouraging debt in this way is part of the problem. I do like how the proposal encourages saving and paying down mortgage debt. I do think this program would not do much for those on the margins who are likely to go into foreclosure. The problem these people have is too much debt and too little income. To qualify for the program as outlined, people would need to refinance into a fixed-rate mortgage. I like that idea, but very few marginal borrowers can afford to do this, and those who are distressed are underwater and could not obtain fixed-rate financing even if they could afford it. Basically, this proposal would help those who need it least.
The proposal is not a fix for the foreclosure crisis. There is no fix. It does address the problem of saving for a house and the use of exotic financing, and I like that.Read the rest of this entry »
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