Congress Tries to Blow Up the Housing Bubble Again

Come hell or high water, the government seems intent on bringing back the housing bubble.

From Bloomberg:

Lawmakers are pushing to revive legislation in the Senate that would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers.

Senator Johnny Isakson, a Georgia Republican, introduced a bill today that would increase the tax credit to $15,000 and remove income and other restrictions on who can qualify, according to his spokeswoman, Sheridan Watson. The Treasury Department declined to comment on the proposal.

The legislation, co-sponsored by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, would extend the homebuyer credit to multifamily properties used as the borrower’s primary residence. It would also eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit.

The bill would extend the tax credit, which now applies to homes purchased from Jan. 1 to Dec. 1, 2009, to one year after the new measure is signed into law, according to Watson. Isakson’s bill would make the credit available to all borrowers, not only borrowers who haven’t owned a home in the previous three years as is the case under current law. It would also let borrowers divide the credit over two years. The legislation wouldn’t be applied retroactively to purchases completed before the date of enactment, Watson said.

Now you probably think that they would stop there, don’t you. Well, when it comes to housing there apparently isn’t anything that the government won’t do.

The Business Roundtable and Realtors group also recommended the Federal Reserve continue to purchase mortgage securities guaranteed by Fannie Mae, Freddie Mac and government mortgage bond insurer Ginnie Mae to drive down mortgage rates to less than 5 percent.

The Fed is about a third of the way through its $1.25 trillion commitment, holding $427.6 billion of mortgage debt backed by the government-sponsored enterprises as of June 3, according to the New York Federal Reserve.

No matter how moribund any asset class may be, it can always be turned into a bubble if you throw enough money at it. The problem with bubbles is that, as very recent history reminds us, they always burst. If a simpleton like me has learned that lesson, why is it lost on the members of Congress?

One final thought. Who do they think is going to pay for all of this?

About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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