Congress and their Foreclosure Fiasco – TaxMama’s Economic Idiot Award

TaxMama’s Economic Idiot Award goes the 58 Senators who voted for this plan.

Speaking of wasting money. Did you follow the Congressional
debates on the foreclosure crisis? [See links in Resource Box below.]

What a total disappointment!

Congress nixed the authority for bankruptcy judges to revise interest rates and principal on existing loans – so
homeowners could keep their homes; so lenders don’t go out of business; so investors lose some money – or delay getting paid until the end of the loan – so houses don’t sit empty and attract vandals.

Instead, Congress is providing billions to help lenders, and homebuilders, and to towns to buy back empty, foreclosed properties.

Buying back foreclosed properties. Reality check.
1) The lenders and investors lose 6-12 months of payments while they don’t get paid during the foreclosure process. Handled properly by the homeowner, they can drag the process out for 6 months or more – especially if they also file for bankruptcy just before the foreclosure is finalized.

2) The house goes on the block and the lenders and investors get pennies on the dollar. MUCH LESS than they would have gotten if the judge could have revised the loan terms in bankruptcy or reorganization.

3) The houses sit empty for months, waiting for the city or one of it’s contracted foreclosure sales companies to auction off the house. This attracts vandals, damage and natural decline due to nature and neglect.

4) So the houses sell for a fraction of what they’re worth. The city loses money on their ‘investment’. Which is subsidized by our taxes.

5) Meanwhile this feeds the downward spiral of home values. And everyone else’s home prices go down, as well. The market starts to implode.

6) And WOW! There’s a $7,000 credit for the vultures who swoop down and feed – by buying foreclosed homes at cut-rate prices. Yup, watch for the feeding frenzy and the entire industry about to explode around this new tax gift. (I really hope there’s only one credit per buyer – not a credit for each home they snap up!)

The entire financial food chain would have come out ahead if the homeowners could be helped to keep their homes.

Investors come out ahead.
Homeowners come out ahead.
The community isn’t disrupted.