The outlook for under-water homeowners is one of expected relief. The Obama administration is allocating a whopping $14 billion from its $75 billion foreclosure-prevention program to helping homeowners who owe more on their loans than the value of their house.
Lenders are being offered incentive payments from the government for slashing the loan amounts for troubled homeowners and writing new loans backed by the Federal Housing Administration. For borrowers who have lost their jobs, there is another offer for relief with three to six months of temporary aid. Banks will receive additional payments if they reduce loan payments or eliminate second mortgages such as home equity loans. This particular problem has blocked many loan modifications so the added incentive is meant to open that blockage.
Will this latest and greatest government housing rescue program really work? Well, so far all the prior Obama administration housing rescue plans have been dismal failures. Personally, I don’t see this current plan making a significant difference.
In my 10-1-08 post entitled #1 EZ Fix to The U.S. Housing Market I stated: “For the government to come in with this huge bail-out now, would just prolong the housing decline. I’d rather see the government stand aside and let the market forces determine the true area average home selling prices. “
For those who think a government intervention is the only way out, I say do it without direct taxpayer money. The undisputed key to this recovery is housing. If the government truly wants to ignite a fire under the housing market, I personally would propose a very simplistic approach that would have immediate results.
The government should pass a bill that allows any home purchaser, owner-occupied or investor buyer, who buys a residential property within the next two years and holds that property for a minimum of three years (and a maximum of ten) to be free of federal capital gains taxes upon selling the property. The potential, tax-free profits on my idea would be a huge incentive for investors to jump back into the residential housing market. This increased demand would clear the built up housing inventory in a matter of months for most areas.”
The relief programs continue to support many people who purchased homes that were out of their affordability range in the first place. In an effort to have a chicken in every pot and their own home for every American, many people bought into the dream before they could realistically pay for it. Other owners thought that their home was a never-ending cash machine and withdrew money for other purchases.
Really, is renting for a few years so wrong?
Read more of my 'tell it like it is' real estate opinions & subscribe to his free RSS feed at: San Diego California housing market blog.