A Stitch in Haste

As is always the case with emergency sausage-style legislation in an election season, there is something for everyone:

–Renegotiating mortgages. Of course, any borrower is always able to renegotiate their debt — assuming the lender is willing. And given a choice between “renegotiate” and “sue for foreclosure,” most lenders readily choose “renegotiate” anyway. Remember: Unlike Silas Barnaby, the big bad bank does not want your shoe — they hate owning foreclosed properties. They just want their money back.

B.S. Factor: “Lenders, however, are not required to give you a better deal under the new law, even if you do meet the qualifications. They may not be willing to negotiate unless they think you are truly on the cusp of foreclosure.” In other words, this provision of the bill is meaningless.

–Break for first-time buyers. Why, exactly, should first-time buyers receive preferential tax treatment? And who is more likely to be a “risky borrower” — a first-time buyer or a seasoned buyer? Wasn’t luring the not-yet-ready into home ownership a key component of how this mess got started?

B.S. Factor: “But you have to pay back the credit over the next 15 years, in equal amounts each year when you pay your federal taxes. That makes this more like an interest-free loan than a true credit.” So it’s a tax credit, but not really? Sorta kinda like: “It’s a low-rate loan, but not really…”?

–Additional deduction. Those who don’t itemize their deductions have never benefited from the favorable treatment of property taxes and mortgage interest. Such filers of course tend to be lower-income households. Which is, of course, are exactly the kind of people whom we want to coax into taking out new mortgages? Right?

B.S. Factor: Another group who don’t benefit from interest deductibility are those who have already paid off, or are close to paying off, their mortgages. They benefit from this added deduction too, even though they are precisely those who did not get caught up in the mortgage crisis. But why should a “mortgage bailout bill” concern itself with those who need no bailing out?

–Reverse mortgage regulation. Not much to say here, except that this provision is nothing more than typical warm-fuzzy-feeling paternalism (much like the rest of “Truth in ___” financial regulation). Apparently, we simply must protect our idiot grandparents from the big bad bankers, and we must do it at the federal level.

B.S. Factor: The whole idea.

–Redefinition of jumbo loans. “Under the new bill, Fannie and Freddie have permanent authority to buy bigger loans in areas with high housing costs.” Because the problem all along with Fannie and Freddie was that they were too small and not doing enough. Or something.

B.S. Factor: Yet another way to enable marginal borrowers to take on bigger mortgages than they would otherwise be able to. Which somehow “helps” the mortgage crisis.

Break for veterans. “Lenders will have to wait nine months, instead of 90 days, before beginning foreclosure proceedings on homes owned by someone returning from the military.”

B.S. Factor: I like veterans as much as the next guy. Which is exactly why I’d prefer that they not be exploited as a bullet point for activist legislators trying to peddle their activist legislation.

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And don’t forget the non-mortgage provisions of the bill:

–Raises the national debt ceiling.

–Grants flagrantly unconstitutional authority to the Secretary of the Treasury to spent unappropriated and unlimited taxpayer funds to buy stock in Fannie Mae and Freddie Mac.

–Expands the power of the FDIC (which is itself an illegitimate function of government).

–Provides block grants to states to buy already foreclosed properties (which is not only not a legitimate function of government, and not only benefits the big bad banks rather than the poor unfortunate borrowers, but also raises the specter of the same sort of abuse that happened the last time the federal government gave such block grants to states).

–Expands Section 8 housing welfare (but — get this — only for specific properties in Malden, Massachusetts, and San Francisco, California — what, I wonder, is the story behind that?).

–Finally:

And there is a provision tailored narrowly for Chrysler to ensure that it can benefit from a corporate tax incentive even though the company is now structured as a partnership not a corporation. The bill does not name Chrysler but rather describes an unnamed automobile manufacturer “that will produce in excess of 675,000 automobiles” between Jan. 1 and June 30, 2008.

The word “subprime” might apply to Chrysler in other ways, but not in the context of residential mortgages. But that of course doesn’t stop them from rent-seeking a tax break in a “subprime residential mortgage bailout bill.”

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In the end, it was the federal government’s obsession, for sixty years, with achieving ever-increasing home ownership that created the subprime crisis. And the only solution they can come up with is to continue the obsession — with more tax breaks, more subsidies, more interference with otherwise perfectly functioning private markets.

Plus ça change…

More thoughts from QandO, Dealbreaker, Marginal Revolution.

UPDATE: Robert Samuelson echoes similar thoughts.