I Guess I Spoke Too Soon!? No Deal on $700 Billion Bailout.. Yet.

Yesterday I posted the news that we had all been waiting to hear. Congress had finally come to an agreement and had settled on a bailout deal to help jump-start our faltering markets.

The price tag? A mere $700 billion dollars.

At the announcement of proposed deal the Dow Jones industrials enjoyed a 196-point gain to close the day.

And then news started trickling out last night that the deal – was certainly no deal at all… yet.  From the AP

Sen. Richard Shelby, of Alabama, the top Republican on the Senate Banking Committee, emerged from the session to say the announced agreement “is obviously no agreement.”

House Republicans have been balking at the proposed deal. The deal, they say, is too expensive and it places too much of the weight of the bailout on the taxpayer’s shoulders.

One group of House GOP lawmakers circulated an alternative that would put much less focus on a government takeover of failing institutions’ sour assets. This proposal would have the government provide insurance to companies that agree to hold frozen assets rather than have the U.S. purchase the assets.

Rep Eric Cantor, R-Va., said the idea would be to remove the burden of the bailout from taxpayers and place it, over time, on Wall Street. The price tag of the administration’s plan to bail out tottering financial institutions — and the federal intrusion into private business matters — have been major sticking points for many Republican lawmakers.

When looking at the price tag for the bailout, it does make one wonder why other options haven’t been explored. Why is it automatically assumed that we the taxpayers MUST foot the bill? And is this huge $700 billion bailout really all necessary?  Would we be able to give things a helping hand with say – half that amount?

What IS agreed upon is that we have some serious problems right now, and something needs to be done.

There is wide agreement the U.S. economy is in peril, with financial institutions going under or near the edge and recession looming along with the resulting layoffs and increased home foreclosures.

“All of us around the table … know we’ve got to get something done as quickly as possible,” Bush told reporters, brought in for only the start of the meeting. Obama and McCain were at distant ends of the oval table, not even in each other’s sight lines. Bush, playing host in the middle, was flanked by Congress’ two Democratic leaders, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid.

McCain and Obama later said they both still expected an agreement could be reached.

Under the accord announced hours earlier among key lawmakers, the Treasury secretary would get $250 billion immediately and could have an additional $100 billion if he certified it was needed, an approach designed to give lawmakers a stronger hand in controlling the unprecedented rescue. The government would take equity in companies helped by the bailout and put rules in place to limit excessive compensation of their executives, according to a draft of the outline obtained by the Associated Press.

What form would you like to see any proposed bailout take? A $700 billion taxpayer financed bailout where the government takes over troubled assets, or something more along the lines of the government providing insurance to those companies willing to hold onto the assets?

Source: biblemoneymatters.com

Lawmakers Push For An Extension Of The $8000 First Time Homebuyers Tax Credit Into 2010 In Proposed Bill

Since earlier this year we’ve been talking a lot about the $8000 first time homebuyer tax credit that was passed as a part of the 2009 Economic Stimulus Package. The credit has been available for first time homebuyers since January 1st, and will continue to be available until November 30th. Now that the program is beginning to wind down, the rumblings about trying to get the program extended or modified have begun. A few months ago there was talk about the tax credit being increased to $15,000, but that never got off the ground.  Another bill that was introduced last month also never got out of committee.  So while there is interest in passing an extension, nothing has come to fruition yet.

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In order to create hundreds of thousands of badly needed jobs and move the economy to higher ground, the National Association of Home Builders (NAHB) today called on Congress to extend and expand the $8,000 first-time home buyer tax credit set to expire at the end of next month.

Testifying before the Senate Banking Committee, NAHB Chief Economist David Crowe warned that builders are reporting that business generated by entry-level buyers is already declining because it is now too late to complete a new home sale in time to take advantage of the tax credit.

To spur job growth, help reduce foreclosures and excess housing inventories and stabilize home values, NAHB is calling on Congress to extend the home buyer tax credit for an additional year through Nov. 30, 2010 and make it available to all purchasers of a principal residence.

The drop in business seen by home builders is real.  The number of building permits for new homes dropped significantly in September

Applications for home building permits, a gauge of future construction, fell in September by the largest amount in five months — a discouraging sign for the housing industry.

The decline, in part, reflected uncertainty about whether Congress will extend a tax credit for first-time homebuyers.

The applications for building permits fell 1.2 percent in September. That’s the biggest decline since a 2.5 percent drop in April and underscored worries that the fledgling housing revival could be derailed by rising unemployment, tighter bank lending standards and the expiration on Nov. 30 of the government’s $8,000 tax credit for first-time homebuyers.

Is The Tax Credit A Good Idea? Some Think It Won’t Make Much Of A Difference

Many in the building and real estate industries are clamoring for an extension of the credit, while others aren’t so sure that the cost of extending the program are worth it.

Housing Secretary Shaun Donovan said at a congressional hearing Tuesday that supporting the housing market “can be very expensive, especially at a time of significant budget deficits.”

The administration will make a recommendation on whether to extend the credit in the coming weeks, after studying data on tax filings from the Internal Revenue Service. While there would be some negative effects if it were allowed to expire, Donovan said, “I do not believe that a catastrophic decline would be the result.

Some analysts and lawmakers are skeptical about extending the credit, arguing that most homebuyers who receive it would have decided to buy anyway. And soaring unemployment is likely to dull the impact of any extension, Mark Vitner, a senior economist with Wells Fargo Securities, wrote in a note to clients.

“Many of the most likely buyers targeted have already taken advantage of the program,” he wrote.

The Newest Tax Credit Bill Piggybacks On Unemployment Benefits

So there is clearly division as to whether the program should be extended.    Other bills to extend the credit and increase the amount it gives to homebuyers have already died a slow death in committee never to again see the light of day.    This week Congress is once again considering another plan that would extend the credit through June of 2010.  Whether this new one will make it out of the committees remains to be seen.

The latest Senate proposal would drop the requirement that the credit be available only to first-time buyers, broadening the reach of the program but also adding to its cost, estimated by congressional analysts at $16.7 billion.

The backers of that idea, Sens. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., chairman of the Senate’s banking committee, have suggested that their measure be attached to another pending bill aimed at throwing a lifeline to people hit by the recession, an extension of federal assistance to the millions in danger of exhausting unemployment insurance benefits.

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The Isakson-Dodd proposal would extend the credit to June 30, 2010. It would also remove the first-time homebuyer requirement and raise the eligibility income limit to $150,000, or $300,000 for a couple. That’s double the current phase-out limits.

Provisions Of The New Proposed Homebuyer Tax Credit

So if this new bill that is piggybacking on an extension of unemployment benefits were passed, it would mean that the tax credit would be extended, and the new provisions would be:

  • You would not need to be a first time homebuyer – that provision would be removed.
  • It applies to homes purchased through June 30, 2010.
  • You must keep the home for three years.
  • The credit is refundable.
  • The credit is for $8,000 or 10% of the home’s value, whichever is less.
  • It phases out for incomes between $75,000 to $150,000 for single and $150,000 to $300,000 for couples.

So while it is still unsure as to whether this particular extension of the first time homebuyer tax credit will be passed, the momentum for an extension to be passed in some form is very real.  I would expect something to be passed at some point this  year.

UPDATE: A new bill has been “agreed to” by Senators, that would extend the credit and add a $6500 Tax Credit for current homeowners.  Details here.

What do you think?  Should the tax credit for homebuyers be expanded to all homebuyers, and extended until June of 2009?  Will the effect it has on our economy be worth it, or will it be just another large expenditure when we are already running huge deficits?  Let us know your thoughts in the comments!

Source: biblemoneymatters.com

Fed sounds alarm on commercial real estate, business bankruptcy

The Federal Reserve warned of significant risks of business bankruptcies and steep drops in commercial real estate prices in a report published on Friday.

“Business leverage now stands near historical highs,” the central bank said in its semiannual Monetary Policy Report to Congress. “Insolvency risks at small and medium-sized firms, as well as at some large firms, remain considerable.”

In part encouraged by government and Fed programs, businesses have taken on more debt over the past year as they’ve struggled to deal with the economic and financial fallout from COVID-19, including in some cases forced shutdowns.

Powell testimony

The Fed report, which provides lawmakers with an update on economic and financial developments and monetary policy, was published on the central bank’s website ahead of Chair Jerome Powell’s testimony before the Senate Banking Committee on Tuesday and the House Financial Services panel a day later.

In the report, the Fed voiced hopes of an end to the pandemic later this year, though it cautioned that pitfalls remained.

In particular, it said that commercial real estate prices “appear susceptible to sharp declines” from historically high levels. That could particularly prove to be the case if the level of distressed sales picks up or if the pandemic leads to longer-term declines in demand, it said.

Commercial real estate might be hit by a double-whammy after the pandemic, some economists say. An increase in people working from home could result in less demand for office space, while stepped-up online purchases could force more shutdowns of brick-and-mortar retailers and additional vacancies at shopping centers.

Source: nationalmortgagenews.com

HUD nominee pledges to promote affordable housing, work with Congress

WASHINGTON — President Biden’s nominee to lead the Department of Housing and Urban Development pledged to lawmakers Thursday that if confirmed, she would consult with Congress on changes to mortgage insurance premiums and work to prevent a wave of COVID-19-related foreclosures.

Rep. Marcia Fudge, D-Ohio, also told the Senate Banking Committee in a hearing to examine her nomination that her first priority as secretary would be to assist struggling renters and homeowners and “get people the support they need to come back from the edge.”

“We need to make the dream of homeownership — and the security and wealth creation that comes with it — a reality for more Americans,” Fudge said in prepared remarks. “That will require us to end discriminatory practices in the housing market, and ensure that our fair housing rules are doing what they are supposed to do.”

Some in the mortgage industry have speculated that the Biden administration may move quickly to cut mortgage insurance premiums for Federal Housing Administration loans, an option that Fudge left open during the hearing.

“We want to be sure that FHA is available for people who want to take the next step,” she said. “That may be helping with down payment assistance, it may mean reducing rates.”

But Fudge committed to Sen. Pat Toomey of Pennsylvania, the top Republican on the committee, that she would discuss changes to the premium structure with Congress before making any decisions.

“If I’m fortunate enough to be confirmed, I will talk the staff at HUD,” she told Toomey. “We will figure out what the status is right now, and come back to you to have discussions about where we should go from there.”

Several lawmakers, including Sen. Sherrod Brown, D-Ohio, the incoming chairman of the Senate Banking Committee, also expressed concern about possible foreclosures and evictions if borrowers and renters affected by the pandemic are unable to make rent or mortgage payments.

“Many of us in Congress have said we have to do more to prevent waves of foreclosures and evictions to stop millions of people from taking a permanent financial hit because of the crisis,” Brown said.

Fudge brought up a number of ideas she said she would pursue as secretary to prevent borrowers and renters from losing their homes, including increasing the supply of affordable housing, preserving public housing, expanding housing choice vouchers and offering down payment assistance.

Fudge also indicated to lawmakers that if confirmed, she would look to roll back the Trump administration’s overhaul of HUD’s “disparate impact” standard in fair-lending rules.

The legal standard, which can be used to punish lenders for discriminatory effects even if none were intended, has long been unpopular with banks, but Democrats have called it “the most important tool” for enforcing the Fair Housing Act.

Fudge said she was “willing to consider” going through the notice and comment rulemaking process when taking a closer look at the rule, per President Biden’s recent executive order.

She also pledged that any changes she would make would be consistent with the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc., which upheld the use of a disparate impact theory if it disproportionately affects a protected class without a legally sufficient justification.

Source: nationalmortgagenews.com