The Infotainment Highway has presented the Foreclosure Prevention Act as a bail-out program instituted by the Administration to help the ailing homeowner. This is what really happened:
The Foreclosure Prevention Act (FPA) is full of tax breaks - for the banks/lenders, builders, automakers, (and the airlines).
In the beginning, the mortgage companies/lenders promoted adjustable rate mortgages to the most vulnerable home buying candidates. The strategy was the bank/lender was taking little or no risk, because they would immediately transfer (or dump) the mortgage into a secondary market.
The core of the Foreclosure Prevention Act approved by the Senate is essentially a tax break for the homebuilders and the mortgage bankers, giving taxpayer money to two of the industries that actually caused the housing crisis:
In the Senate bill, the nation's biggest homebuilders, some on the verge of bankruptcy, won a provision that would let them claim millions in tax refunds by charging their current losses against the huge profits they made three or four years ago. Other struggling industries would also benefit.
Ford and General Motors were especially dogged in securing a tax break that would let them collect up to $40 million each in alternative minimum tax credits that would otherwise be out of reach because they did not pay enough taxes in recent years to claim a rebate.
- From the Dallas Morning News
The mortgagors/lenders and builders will now also be able to report losses on properties back four years instead of two, as has been the case. Further, these parties will be able to take a $7,000 tax break when they buy foreclosure properties. Since it is usually the bank or lender that buys the defaulted home back at the county sheriff sale, not only will they get the homes, they will also be able to take thousands of tax breaks by foreclosing.
Builders will be able to keep putting up homes due to the government subsidies. This puts more new houses on the market, driving home prices down even further.
The $7,000 tax credit for purchasing foreclosed properties will last for the next 12 months, at which time it will be extended or expire. It stands to reason that the largest purchasers of foreclosure homes in the next year will be the biggest lenders, since they will have the most default mortgages. This twelve months of foreclosures could create hundreds of billions of dollars in tax credits for the buyer, again, the vast majority of buyers being the original bank/lender on the foreclosed home.
