New Obama housing strategy: Flip This Bailout?

posted at 11:00 am on March 8, 2012 by Ed Morrissey

It seems that the White House has tried everything they can to keep housing values from dropping to a historically-rational level.  They have blocked foreclosures, offered gimmicky tax breaks that did nothing but steal demand from future quarters, and spent tens of billions on HAMP.  All of these came from the Obama administration’s emphasis on the unfairness of bailing out Wall Street while doing nothing about Main Street and the individual homeowners who got stuck with bad bets on real estate.

Now, however, Bloomberg reports that Barack Obama will widen the eligibility for taxpayer-subsidized rescue programs to the speculators that Democrats routinely demonize in every other context:

The Obama administration will extend mortgage assistance for the first time to investors who bought multiple homes before the market imploded, helping some speculators who drove up prices and inflated the housing bubble.

Landlords can qualify for up to four federally-subsidized loan workouts starting around May, as long as they rent out each house or have plans to fill them, under the revamped Home Affordable Modification Program, also known as HAMP, according to Timothy Massad, the Treasury’s assistant secretary for financial stability. The program pays banks to reduce monthly payments by cutting interest rates, stretching terms, and forgiving principal. …

Investors are central to the federal government’s strategy for reviving real estate with home prices down 34 percent since July 2006 and as foreclosures deplete the pool of buyers who can qualify for a mortgage. Federal Reserve Chairman Ben S. Bernanke told homebuilders in Orlando, Florida last month that the U.S. economic recovery has been “frustratingly slow,” in part because weak housing markets are holding back consumer spending.

The homeownership rate, which peaked at 69.2 percent in June 2004, fell to 66 percent in the fourth quarter of 2011, according to the U.S. Census Bureau. A new Fannie Mae program designed to reduce the overhang of foreclosed homes is encouraging potential buyers, including private-equity firms, to purchase properties in bulk and convert them to rentals. Almost one in four home purchases in January was made by an investor, according to the National Association of Realtors. And investment and vacation properties made up 21 percent of houses in the foreclosure process in January, according to Irvine, California-based RealtyTrac Inc.

In my column today for The Fiscal Times, I point out that these owners were making business investments, not buying homes to shelter their families, and that Obama now wants responsible taxpayers to indemnify these speculators for their irresponsible behavior:

At least the rationale for government intervention on behalf of individual homeowners made political sense, if not fiscal or market sense.  The federal government, with backing from congressional Democrats, had encouraged individuals to buy rather than rent, and distorted the market so that they could get mortgages that their families couldn’t afford.  Even though individual homeowners should think of their houses as investments – and investment carries risks – it became bad politics to remind people of this simple fact over the last three years.

That, however, does not apply to speculators.  They didn’t buy houses to shelter their families; they bought them specifically as investments, and were rewarded with handsome profits in the bubble they helped fuel.  Those investments carried significant risks, and reversals in this field are hardly unprecedented, as anyone who lived through the collapse of the real-estate market in Southern California in the late 1970s would recall.

What possible reason could there be for taxpayers to subsidize the losses of people who treated real estate as a speculative investment market and bet badly?  Most of these taxpayers acted responsibly in buying their own homes or choosing to rent rather than overextending their finances.  Obama proposes to penalize people who acted responsibly by making them cover the losses of those who acted irresponsibly, and who as a group profited handsomely from those bets until the bottom fell out in 2008.

Further government intervention to rescue irrational home values created by previous government intervention is a fool’s errand in any case.  However, asking taxpayers to rescue speculators sounds like “Flip This Bailout.”

I also point out that the Case-Shiller index for the 20 largest housing markets has dropped below the level when Obama first came into office, and is at its lowest since late 2002.  That, however, is exactly what should be happening.  We need housing to fall back to rational valuation, which would be roughly the 1998-99 level plus inflation over the past 14 years, as housing values until then strongly correlated to overall inflation.  Instead, Obama wants to be seen as the President who saved home values no matter how irrational they are at the moment, and is spending a fortune in that attempt — and sticking taxpayer dollars into the pockets of those (as a group) who profited from the bubble and played no small part in its inflation.

We don’t need more government intervention to fix what government intervention broke in the first place, and we certainly don’t need responsible homeowners to pay off the losses of real-estate speculators.  Flip This Bailout should be canceled before its pilot airs.


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The Dukes of Moral Hazard!!! aawww dude!

ted c on March 8, 2012 at 11:04 AM

I think it’s great that the government is not only sudsidizing cars for people who make more than $170,000 per year; but it’s also helping them purchase second and third houses!

Yay Democrats!

lorien1973 on March 8, 2012 at 11:04 AM

Instead, Obama wants to be seen as the President who saved home values no matter how irrational they are at the moment, and is spending a fortune in that attempt

is he trying to reinflate the bubble?

ted c on March 8, 2012 at 11:06 AM

Obama is also going to do this. Lefties never learn anything. They are stuck on stupid.

http://cnsnews.com/news/article/obama-will-make-taxpayers-guarantee-mortgages-without-checking-borrowers-incomes-or

Wigglesworth on March 8, 2012 at 11:06 AM

as long as they rent out each house or have plans to fill them,

Oh, that’s not likely to get abused.

rbj on March 8, 2012 at 11:07 AM

Throwing our money away one special interest or victim group at a time. If it ends up helping as many people as the last bailout, it won’t amount to much.

Kissmygrits on March 8, 2012 at 11:11 AM

Back when this whole mess started, the foreclosed properties should have been bulldozed if left empty for more than 6 months. That would have reduced supply and improved the value of other houses.

All they’ve done is prolong this mess under the guise of helping people.

John Deaux on March 8, 2012 at 11:13 AM

I would’ve posted my favorite song from Dukes of Hazard, just for some great thread music but…….the messaging would’ve been a bit off.

ted c on March 8, 2012 at 11:14 AM

“The dukes of moral Hazard”…that is brilliant!

HAMP is not helping, will not help, and is a complete joke. The industry itself could have fixed the issue without government intervention. If the restraints of the feds were lifted, lenders would be able to help the individuals that should have been assisted in the first place. Those individuals that due to job loss or death of a spouse for example, who were struggling but maintaining their mortgage payment. We are currently assisting home owners who have not made a payment in years. Statistics have proven that these individuals will default again, regardless of the steps taken to rectify the situation.

There is no temporary help in this country for those who need a short term solution in order to reach their long term goal. We have programs to keep people down permanently.

shar61 on March 8, 2012 at 11:15 AM

asking taxpayers to rescue speculators sounds like “Flip This Bailout.”

“Flip This Bailout” or “Bailout These Flippers”? Most of these speculators were probably planning on flipping the houses for a quick profit, but got stuck with the houses (and the mortgages) when housing prices started free-falling.

Now the rest of us get to pay so that these houses can become profitable rental properties for the speculator/owners who miscalculated? Yeah, that’s fair.\

AZCoyote on March 8, 2012 at 11:18 AM

…as long as we don’t see pics of the Moose in Daisy Duke shorts……

search4truth on March 8, 2012 at 11:18 AM

eh, I “Flip the Bird” to Obama every time I see him anyway.

OkieDoc on March 8, 2012 at 11:29 AM

0bama is giving houses to the 1% – and we need to be shouting it from the rooftops!

Rebar on March 8, 2012 at 11:32 AM

It seems that the White House has tried everything they can to keep housing values from dropping to a historically-rational level.

All setting up for a very uncomfortable speed bump in the housing market that their interventions are making worse.

Is there anything this administration hasn’t made worse?

Speakup on March 8, 2012 at 11:33 AM

Follow the campaign contributions.

a capella on March 8, 2012 at 11:36 AM

is he trying to reinflate the bubble?

ted c on March 8, 2012 at 11:06 AM

You ask that as if it is a bad idea.

/s

Nathan_OH on March 8, 2012 at 11:37 AM

“As long as they rent out each house or have plans to fill them”

And in steps Obama to tell them they have to rent them as Section 8. Wouldn’t surprise me AT ALL.

JennM111 on March 8, 2012 at 11:42 AM

Landlords can qualify for up to four federally-subsidized loan workouts starting around May, as long as they rent out each house or have plans to fill them, under the revamped Home Affordable Modification Program, also known as HAMP, according to Timothy Massad, the Treasury’s assistant secretary for financial stability. The program pays banks to reduce monthly payments by cutting interest rates, stretching terms, and forgiving principal.

Who really needs 4 houses? Let those unoccupied houses be foreclosed, and put out on the market. If they are cheap enough, somebody will buy them, and either rent them out or fix them up to try to make money selling them later. Fixing them up will create jobs for construction workers and contractors. Once the foreclosed houses are out of the market, all home values will rise.

The sooner these houses are foreclosed, the sooner the market will recover. Time to take the hit, and stop kicking the can down the road.

Steve Z on March 8, 2012 at 11:42 AM

When you manipulate the free market, you will always have bubbles that burst because you are not creating new income, you are simply redistributing the same dollar from sector to sector. It’s the epitamy of a vicious cycle.

lea on March 8, 2012 at 11:43 AM

Absolutely, attrocious. My guess is that we wants to investors to pay back some of their savings into his campaign warchest.

Bob in VA on March 8, 2012 at 11:48 AM

around May, as long as they rent out each house or have plans to fill them,

Step 1: Plan to fill out your vacancies.
Step 2: ????
Step 3: Profit!

lorien1973 on March 8, 2012 at 11:48 AM

The whole crew from JugEars on down, are clusterfarks! They are a Grounhog Day movie type nightmare, every day! GOD HELP US!

KOOLAID2 on March 8, 2012 at 12:08 PM

If housing values get any more ‘rational’ here in AZ, I’ll be living in a tent.

DrW on March 8, 2012 at 12:20 PM

Okay, I have a question. Is Barry doing this because he thinks he’s gonna lose the election and wants to sit back and watch all of his chickens come home to roost under a Republican president?

DaveDief on March 8, 2012 at 12:48 PM

If housing values get any more ‘rational’ here in AZ, I’ll be living in a tent.

DrW on March 8, 2012 at 12:20 PM

The housing prices here in the SF Bay Area are skyrocketing and there is that same “feeding frenzy” that occurred during the bubble. I went out house shopping last week and there were large crowds at every open house and crowds at some that were not open. I’d say 90% of the “stale” listings have sold. And most new listings sell by the end of the week. If the price is around $400,000 then it sells with multiple offers regardless of condition. You should see the junk that is selling. Example: house built in 1954, NEVER UPDATED, was used as a drug house…..14 offers. Sold in 3 days. asking price $409,000. Sold for more!!!!

I don’t think we need any more help here. I can no longer afford a house. It is 2006 all over again.

JeffVader on March 8, 2012 at 1:02 PM

Does President 10-289 get his policy decisions straight from the pages of Atlas Shrugged?

MichaelGabriel on March 8, 2012 at 1:06 PM

I know someone who just received an offer for a six-month agreement to pay what amounts to one-fourth of the mortgage on her already in foreclosure home. I believe the offer is from the lender and seems like a rental agreement, but to what end the offer aims, other than ultimate foreclosure, is not anywhere near clear. The housing market and mortgage industry are voodoo and smoke ‘n’ mirrors economics these days.

stukinIL4now on March 8, 2012 at 1:18 PM

It makes me really angry that we have to pay money in taxes that the government just turns around and wastes.

sherrimae on March 8, 2012 at 1:18 PM

I am going to try to disagree with the opening statement here:

It seems that the White House has tried everything they can to keep housing values from dropping to a historically-rational level.

Can other people help with this question? Dodd Frank is changing the way that appraisals happen for new sales and for mortgage re fi. They are not letting local appraisals give good market prices from their area, they are forcing faceless Big Appraisal companies the power to say what your home is worth.

Does anyone have experience with this?

For instance, they have changed the time frame for finding your comparables, from homes sold last year during the last 6 months, to those sold during the last 90 days.

If you were buying a house today in March, the value you borrow for a certain kind of house will be figured comparable to a home that sold during the Thanksgiving Christmas season, often whatever couldn’t sell all year, and the Best Bargains.

Then in June someone wants to buy a house, it can only be valued like yours which was based on these December values. This sounds like a death spiral in prices to me, and NO one will be putting their home on the market just to buy a new one. How do you stop a negative sprial like that?

Am I misreading?

People here must know?

I would not accuse the Obama administration from not wanted the prices to bottom out, because on that side, they think housing costs too much and there should be no appreciation and no profit made on homes.

Not letting homes go to foreclosure is not a gimmick they are using to play with prices, they are really trying to keep the good and the bad in their homes, because they don’t think they should be taken away from the home owners and sold.

I am not in favor of the forgiving principal idea they are persuing, because that LEADS to lower prices. And that is what they want, lower prices. Most current homeowners, who have invested only in their home, paid the mortgage, played by the real rules, don’t want to lose the investment they made in their house or it’s value.

And, from Market to Market, there are different issues. I would look out for sleight of hand, and actual driving prices lower, rather than them falling to what the market was intending.

Where I live, the salaries have not changed, and people still have the same amount to spend on a starter home, and when they make their offer, and have the cash in hand, these faceless appraisal people are saying the local comparable sales in your LOCATION don’t matter. They don’t want some homes in an area to be worth more than other homes…do you get it? no more location location location, and a dump on a main road is the same as the same square feet on a cull de sac, or the best little home in what you and me call an expensive area.

Please comment.

Fleuries on March 8, 2012 at 1:31 PM

I think it’s great that the government is not only sudsidizing cars for people who make more than $170,000 per year; but it’s also helping them purchase second and third houses! Yay Democrats! lorien1973 on March 8, 2012 at 11:04 AM

Why not?!

Akzed on March 8, 2012 at 1:35 PM

Wait, wait, lemme get this straight…

Gas prices are absurdly high because of speculators, but housing prices are low because we don’t have ENOUGH speculators?

Is that the freaking logic here?

I admit, it is consistent in a bizarre and self-immolating kind of way. Hey, the fire’s almost out! POUR ON THE GAS!

AJsDaddie on March 8, 2012 at 1:35 PM

The Dukes of Moral Hazard!!! aawww dude!

ted c on March 8, 2012 at 11:04 AM

Agree with shar61. Brilliant. Entirely deserving of the pole position in comments.

wolfsDad on March 8, 2012 at 1:57 PM

Wait, wait, lemme get this straight…

Gas prices are absurdly high because of speculators, but housing prices are low because we don’t have ENOUGH speculators?

Is that the freaking logic here?

AJsDaddie on March 8, 2012 at 1:35 PM

NICE! well said!!!

JeffVader on March 8, 2012 at 4:53 PM

…Landlords can qualify for up to four federally-subsidized loan workouts starting around May, as long as they rent out each house or have plans to fill them, under the revamped Home Affordable Modification Program, also known as HAMP, according to Timothy Massad,..

I have already filled my house, and have additional plans to overfill it: can I have a big subsidy too???

Unfortunately, I haven’t defaulted on a loan, but I’m willing to default on paying my Federal taxes in order to qualify!!!

It’s only faaaaaaaair!!!
(read in an intolerably whiney voice)

PS: You can charge it to Obama’s stash.

/SARC>

landlines on March 8, 2012 at 5:02 PM

The writer here says:

We need housing to fall back to rational valuation, which would be roughly the 1998-99 level plus inflation over the past 14 years, as housing values until then strongly correlated to overall inflation.

Can you explain your idea here? it sounds like a crazy formula, it must work for where you live, right now I am hearing about appraisals that are taking people back to 9-11 values, when the financial stocks went after the attack on our country. Your numbers and mine don’t jibe. We would like congress to roll their budget back to 2008 and there is hemming and hawing and footdragging.

Fleuries on March 8, 2012 at 5:23 PM

Evidently housing speculators are an untapped resource for campaign funds. Who knew?

GarandFan on March 8, 2012 at 7:54 PM