Life support for the real estate market
The patient is the real estate market, and the best specialists in the country have all taken a whack at curing the poor thing. We’ve had stimulus programs, tax credits, low interest rates, loan modifications and a lot of creativity coming out of the real estate industry, but we still have a pretty sick puppy. Well the calvary just galloped into town in the form of the federal government throwing out a couple of lifelines, again.
On Nov. 6, the president signed a bill expanding the $8,000 first time home buyer tax credit due to expire at the end of this month. As long as buyers sign a contract by the end of April, they can apply for the tax credit until the end of June of next year. The bill also offers a $6,500 tax credit to buyers who have lived in their current residence at least five years. The measure doubles the income ceiling for eligible individuals to $125,000, with the cost of homes not to exceed $800,000. All of this was included in the bill that also extended unemployment benefits.
Another incentive to keep people in their homes happened this month. Fannie Mae, the government controlled mortgage company, said that it will offer to some people who are losing their homes to foreclosure the option of leasing the home from Fannie Mae for up to one year. The program is called the Deed-for-Lease (D4L) program, and is designed to help homeowners who did not qualify for previous government loan modification programs.
To participate, a borrower must agree to convey all interest in the property to the lender, the home must be the borrower’s primary place of residence, and the homeowner must demonstrate that he/she can afford the fair market rent for the property.
Fannie Mae says the program would help to stabilize neighborhoods by keeping homes occupied and in good condition, as well as providing some income to Fannie Mae. A similar program has been in effect in Virginia, which offers month-to-month leases to people who have lost their homes to foreclosure with the understanding they need to show the property to potential buyers.
But is this really a program to help foreclosed homeowners or a program to make Fannie Mae’s books look better? Third quarter reports show Fannie Mae reporting a net loss of $18.9 billion up from $14.8 billion during the second quarter. Should the government get into the landlord business with all of the extra expense and management involved? Wouldn’t it be better to foreclose on the property and sell it to individuals who will have at least a financial incentive to maintain the property? Unfortunately, the homeowners being foreclosed on will be turned into renters whether the government or private owner is the landlord.
That being said, I’m always for any program that will get real estate selling and appreciating again. The tax credit program has demonstrated that it did get first time buyers motivated, and the new tax incentive will, hopefully, do the same for homeowners who have been thinking about moving.
I hope I’m wrong about Fannie Mae’s program to keep people in their homes. However,I doubt it will help any appreciative number of homeowners or help the real estate market. What is for sure is that it will cost the American taxpayer.
All of the government’s efforts so far have kept the patient breathing. What we don’t know is how long we have to keep the life support hooked up before the plug has to be pulled.