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BretLudwig BretLudwig is offline
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Default How Faith-Based Initiatives Helped Blow Up the Housing Bubble

The Secret History of the Bush-Rove Years, Cont. -- Part 27: How
Faith-Based Initiatives Helped Blow Up the Housing Bubble

"What just happened?


How did eight years of a supposedly "conservative" Administration get us
to this point where the country feels like a tapped out Vegas binge
gambler ejected from the plush casino into the harsh mid-morning light
without even cabfare in his pocket?

We have a general framework for explaining it: Invade the World / Invite
the World / In Hock to the World.

But, with some digging, the small pieces of the puzzle are starting to
come into better focus.

For example, remember the big emphasis that Bush and Rove put on
"faith-based initiatives" as a pillar of their "compassionate
conservatism"? I wrote a few articles about that topic in late 2000, but
it was hard to pay attention because it seemed so boring: the ACLU made
the expected complaints, you heard the usual responses, yawn ...

What almost nobody noticed was how faith-based initiatives tied into the
Bush-Rove jihad against down payments in the service of their goal of
boosting minority homeownership by 5.5 million households.

Beowulf comments:

You just reminded me of something a real estate developer told me a
couple of years ago... He built subdivisions in an urban (i.e. black) part
of town and his marketing campaign involved putting ministers on
commission.

They'd stand in the pulpit and declare that buying a home is the first
step of fulfilling the American dream and their Christian duty. Every
church member who bought a house, the minister got a check.

It was all legal, apparently, if the payments were structured as part
of a downpayment assistance program. Legal, that is, until the IRS took
the punchbowl away in 2006.

So, one of the things that pricked the Housing Bubble in 2006 was the IRS
cracking down on this form of "charity."

Here's a cogent description of the scam from a recent press release by the
apartment building lobby. Obviously, the people who rent out apartments are
biased, but, at least they didn't plunge the world into economic chaos, so
they've got that going for them:

Congress Should Protect Taxpayers and Retain the Ban on 'Charity'
Downpayment Schemes

WASHINGTON, Sept. 16, 2008 /PRNewswire-USNewswire/ -- Congress should
pause and carefully consider the consequences before it acts to overturn
its recent ban of so-called "charity" downpayment assistance schemes,
according to the National Multi Housing Council (NMHC) and the National
Apartment Association (NAA).

Under these programs, a non-profit provides a downpayment to the buyer
and is then reimbursed by the seller, often a home builder. In 2006, the
IRS stripped several of these non-profits of their tax-exempt status,
ruling that the programs benefit sellers more than buyers since sellers
often raise their asking price to cover the amount they theoretically
"donated."

"These circular funding programs come with good intentions but produce
loans that are three times as likely to go into foreclosure and merely
perpetuate the tragically failed policy of zero-downpayment lending that
helped create the current foreclosure crisis," noted Jim Arbury, Senior
Vice President for the NMHC/NAA Joint Legislative Program.

"Congress wisely banned these programs in the Housing Stimulus Bill
that it passed in July," said Arbury. "Now it is considering stepping back
and once again allowing them. This would be a mistake that would lure more
individuals into unsustainable homeownership and put taxpayer dollars at
risk."

"These loans skyrocketed from six percent of the Federal Housing
Administration's mortgage originations in 2000 to approximately 30 percent
as of 2004, and now threaten the financial viability of the FHA," said
Arbury. "The FHA says it expects to lose $4.6 billion in 2008, an
unanticipated loss it attributes largely to seller-financed downpayment
mortgages."

"Today, the House Financial Services Committee will consider a bill
(H.R. 6694) that would overturn the ban and purportedly protect the FHA by
limiting the use of seller-financed downpayment assistance to households
with credit scores above 620," explained Arbury. "Unfortunately, the
wishful thinking that higher credit scores translate into lower default
rates is not borne out by the facts. According to HUD data, even
households with the highest credit scores required by the bill are twice
as likely to default if they use downpayment assistance."

"This is why seller-funded downpayment assistance programs have come
under fire from the IRS, the Government Accountability Office and HUD's
Inspector General's Office," Arbury concluded. "For its own financial
health, the FHA should not be forced to return to insuring loans that
involve seller-funded downpayments."

http://isteve.blogspot.com/2008/11/s...years-how.html

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