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six billion dollar bailout for builders? Just adding fuel to the fire!

Six billion dollar "bail out" for builders. I was listening to Kramer today on CNBC and he was commenting on the "assistance" that is being given to builders because they are coming on hard times with the housing surplus. The irony is that they are the ones that created the surplus.

I have been a mortgage lender for seven years and a real estate agent (now owner / broker) for five years. My lending specialty was in the sub-prime market and I primarily worked with first time home buyers. They all have a plan. Buy 100% financed 2 or 3 year Arm, when the Arm is about to adjust, refinance into a fixed produce. It is a great plan; we all win (the market, the lenders, the homeowner, the real estate agents, and everyone else that gets work out of the transaction).

What happens if new home builders see the trends and then flood the market with homes? My Economics professor said never explain an economic event with Supply / Demand there is a deeper cause. But, for this article, the new home builders built too many homes too quickly, thus a huge supply of homes.

With the huge supply of housing, homes stop appreciating. With no appreciation there is no equity for the 100% person to refinance. The arm adjusts and the homeowner can't make the payment. Is it the homeowners fault? How about the lenders fault? Is the real estate agent at fault? Or is it the people who did condo conversions, zero lot line condos, and sub-divisions?

The next step is the buyer goes into foreclosure and then there is a terrible comp for the appraiser. So, the entire neighborhood is affected. The banks then tighten because of more foreclosure. The high LVT loans disappear. There are more foreclosures and everyone is putting their home up for sale.

So, the solution is to give money to the ones who got us into this mess? Do you think the builders are going to take the money and retire? Do you think they will stop? Or will they use the money to create more unwanted / unneeded supply? How about we let some builders go out of business and save some families from losing their home?

Posted by Boe Lindgren on 04/04/2008 10:39 PM

Comments (9)

six billion dollar bailout for home builders ashlar realty lynnwood washington

9 Comments on six billion dollar bailout for builders? Just adding fuel to the fire!

APR

2008

Boe you bring up an interesting subject. I notice in my area the developers keep developing more site when we have so many that are not even full yet. A builder in my subdivision just went bankcrupt, so now we have two unfinished house not to mention two foreclosures in the neighborhood.

Builders always self destruct. They build regardles of sales slowing down, so they can keep making pay-roll. They build the market up, then destroy it by never slowing their pace. Their solution is always the same;

Nobodys buying=build more houses,

Prices dropping like flies=build more houses.

Teetering on bancruptcy=build more houses.

Then when they finally can't borrow any more money to build houses, they keep building until all the subs have liens on the homes for work they didn't get paid for. Then the bank takes the homes, auctions them off, and floods the market with cheap new homes; killing all hope of previous buyers (of those same builders) selling their home at a profit.

It is interesting that the builders and lenders that caused this mess will likely get all of the support and financial aid, while the average homeowner ends up broke.

This is a great topic to discuss. I hope that more fuel isn't added to the fire, but it sure looks like it is. We'll see what happens!

Hey Boe,

Interesting Post! Well it will be even more interesting to see how this year plays out!

Tom Davis - Delaware Realtor Agent

APR

2008

So what is the name and number of this 6 Billion Dollar legislation?

Who are the sponsors?

The details of the bill. Well, it is S. 2636 known as the Foreclosure Prevention Act. This act outlines many things that the Senate is attempting to accomplish to save the housing market and the economy. You can reference this bill at http://thomas.loc.gov/cgi-bin/query/z?c110:S.2636:

The 6 billion dollar figure was taken from CNBC. It was the topic of conversation all day. It was followed by an evaluation by Kramer on Mad Money. This topic was discussed on Friday around 3pm-ish on his show.

When you follow the link it should give you the information you are looking for.

Thanks,

Boe Lindgren

Broker / Owner

Ashlar Realty

Thanks for the Bill citation Boe.

I find it funny that the congress that is proffering a bill that demands plain language disclosure of mortgage documents would write what follows below.

I saw the Cramer show. What we spoke of sounds outrageous, but, he tries hard to sound outrageous.

How you get to a Six Billion Dollar figure from the following golboldygook is beyond me.

Cramer said that he would go after this cause but I can't find any web pages where he is backing that up <yet>

TITLE VI--INCENTIVES FOR BUSINESS

SEC. 601. CARRYBACK OF CERTAIN NET OPERATING LOSSES ALLOWED FOR 5 YEARS; TEMPORARY SUSPENSION OF 90 PERCENT AMT LIMIT.

(a) In General- Subparagraph (H) of section 172(b)(1) of the Internal Revenue Code of 1986 is amended to read as follows:

`(H) 5-year CARRYBACK OF CERTAIN LOSSES-

`(i) TAXABLE YEARS ENDING DURING 2001 AND 2002- In the case of a net operating loss for any taxable year ending during 2001 or 2002, subparagraph (A)(i) shall be applied by substituting `5' for `2' and subparagraph (F) shall not apply.

`(ii) TAXABLE YEARS BEGINNING OR ENDING DURING 2006, 2007, AND 2008- In the case of a net operating loss with respect to any eligible taxpayer (within the meaning of section 168(k)(1)(B)) for any taxable year beginning or ending during 2006, 2007, or 2008--

`(I) subparagraph (A)(i) shall be applied by substituting `5' for `2',

`(II) subparagraph (E)(ii) shall be applied by substituting `4' for `2', and

`(III) subparagraph (F) shall not apply.'.

(b) Temporary Suspension of 90 Percent Limit on Certain NOL Carrybacks and Carryovers-

(1) IN GENERAL- Section 56(d) of the of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

`(3) ADDITIONAL ADJUSTMENTS- For purposes of paragraph (1)(A), in the case of an eligible taxpayer (within the meaning of section 168(k)(1)(B)), the amount described in clause (I) of paragraph (1)(A)(ii) shall be increased by the amount of the net operating loss deduction allowable for the taxable year under section 172 attributable to the sum of--

`(A) carrybacks of net operating losses from taxable years beginning or ending during 2006, 2007, and 2008, and

`(B) carryovers of net operating losses to taxable years beginning or ending during 2006, 2007, or 2008.'.

(2) CONFORMING AMENDMENT- Subclause (I) of section 56(d)(1)(A)(i) of such Code is amended by inserting `amount of such' before `deduction described in clause (ii)(I)'.

(c) Anti-Abuse Rules- The Secretary of Treasury or the Secretary's designee shall prescribes such rules as are necessary to prevent the abuse of the purposes of the amendments made by this section, including anti-stuffing rules, anti-churning rules (including rules relating to sale-leasebacks), and rules similar to the rules under section 1091 of the Internal Revenue Code of 1986 relating to losses from wash sales.

(d) Effective Dates-

(1) SUBSECTION (a)-

(A) IN GENERAL- Except as provided in subparagraph (B), the amendments made by subsection (a) shall apply to net operating losses arising in taxable years beginning or ending in 2006, 2007, or 2008.

(B) ELECTION- In the case of an eligible taxpayer (within the meaning of section 168(k)(1)(B) of the Internal Revenue Code of 1986) with a net operating loss for a taxable year beginning or ending during 2006 or 2007--

(i) any election made under section 172(b)(3) of the Internal Revenue Code of 1986 may (notwithstanding such section) be revoked before November 1, 2008, and

(ii) any election made under section 172(j) of such Code shall (notwithstanding such section) be treated as timely made if made before November 1, 2008.

(2) SUBSECTION (b)- The amendments made by subsection (b) shall apply to taxable years ending after December 31, 1995.

Calendar No. 577