The whole process operated like a giant Ponzi scheme. But, eventually there aren't enough new chumps to buy into the scheme to keep it going forever. And as soon as those adjustable mortgages started to skyrocket, borrowers who really couldn't afford to be buyers started falling behind in their payments.
Now Uncle Sam wants to ride to the rescue. But, at whose expense? Those who will be most hurt by a bailout are the people who scrimped and saved for a down payment on a home they could afford and did without luxuries in order to pay their bills. No one is going to reimburse them for the fall in their home's value caused by this mess. Instead, they'll be paying higher taxes so that someone who had lousy credit and didn't know how to save could afford to buy a home above their means.
The only thing the feds should do now is make it easier for borrowers with good credit histories to buy existing inventory. One of the most effective ways to do that would be to use tax policy to incentivize buyers. The Senate proposal includes a tax credit for individuals who buy houses now in foreclosure or new, unsold inventory, but not much else.
One idea to spur more sales would be to allow individual investors to write off losses on rental property against other income. Under current law, if you own a house you rent out, you can only take losses against profits when you sell. Since the rent a landlord can charge often doesn't cover the entire mortgage, taxes, insurance and upkeep on the property, many landlords let houses fall into disrepair and aren't likely to buy newer houses to rent out.
Why not allow those individuals who can afford the down payment to invest that money in buying up existing houses to rent out? If they could get even a partial tax deduction for the difference between the rent they receive and their expenses, it would make owning rental property a more attractive investment. And the government would eventually recoup the tax revenue when the house sold.
Many former homeowners are going to end up back in the rental market. We could help them -- and the rest of us -- by encouraging other buyers to purchase those homes as rental properties.
Linda Chavez is chairman of the Center for Equal Opportunity and author of Betrayal: How Union Bosses Shake Down Their Members and Corrupt American Politics .
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