It’s not clear whether HUD Secretary Shaun Donovan was speaking out of school or seriously meant what he said when answering a question on CNN’s “State of the Union” Sunday about whether the government would revive the recently-expired homebuyer tax credit:
…I think it’s too early to say after one month of numbers whether the tax credit will be revived or not. All I can tell you is that we are watching very carefully. I talked earlier about new tools that we will be launching in the coming weeks, and we are going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.
Incredible. There must be something about the political mind that forces it into inherently irrational behavior, i.e., into behavior that is guaranteed to fail to accomplish its stated objectives. Perhaps the problem is that the government doesn’t really know what its objectives are, or at least is quite sure that its objectives include carrying on with government interference in the marketplace such that oversupply conditions can not be resolved through the price mechanism. Earlier in the show, Donovan had claimed that homeowers had gained a trillion dollars in equity because the Obama Administration’s programs had arrested price declines in the real estate market. That sort of thinking is why the real estate market may very well become an economic Waterloo of sorts for the US. Keep throwing soldiers (money) at it, it doesn’t matter. The battle is not winnable.
Of course, don’t forget the new HUD program for refinancing and outright gifting of real estate loans that is coming in September:
In an effort to help responsible homeowners who owe more on their mortgage than the value of their property, the U.S. Department of Housing and Urban Development today provided details on the adjustment to its refinance program which was announced earlier this year that will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth. Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain ‘underwater’ non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.The FHA Short Refinance option is targeted to help people who owe more on their mortgage than their home is worth – or ‘underwater’ – because their local markets saw large declines in home values. Originally announced in March, these changes and other programs that have been put in place will help the Administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012.
Then, don’t forget the Obama Administration’s no recourse, no interest loan program it recently rolled out for homeowers that have lost their jobs:
This new program will complement Treasury’s Hardest Hit Fund by providing assistance to homeowners in hard hit local areas that may not be included in the hardest hit target states. Those areas are still being determined.
The program will work through a variety of state and non-profit entities and will offer a declining balance, deferred payment “bridge loan” (zero percent interest, non-recourse, subordinate loan) for up to $50,000 to assist eligible borrowers with payments on their mortgage principal, interest, mortgage insurance, taxes and hazard insurance for up to 24 months.
Under the program, eligible borrowers must:
- Be at least three months delinquent in their payments and have a reasonable likelihood of being able to resume repayment of their mortgage payments and related housing expenses within two years;
- Have a mortgage property that is the principal residence of the borrower, and eligible borrowers may not own a second home…
To paraphrase Mark Twain, things just get curiouser and curiouser. There seems no limit to what the government will do to support prices. Of course, none of them will work to ameliorate the true problem–a vastly oversupplied market. In fact, most will just exacerbate the problem by preventing the realization of losses and the lowering of prices that should come with excess supply. It will be interesting to see how many banks agree to a 10% haircut on the FHA refi program. And what the refi program would do for property values in the areas in which it is implemented. Will the appraisers be required to ignore the new property valuations so that the neighborhood won’t decline with the refi’s? Curious, indeed.