In this era of ubiquitous bailouts, the public discussion seems to overlook the nine out of 10 of homeowners who are paying their mortgages on time. While the proposals put forth by the Obama administration throw enormous sums of good taxpayer money at those who have engaged in irresponsible or even fraudulent behavior, unfairly left out in the cold are the vast majority of Americans who have behaved responsibly. As House Republicans roll out our alternative housing plan today, we do not make that same mistake.
We believe our plan is the most effective way to stimulate home-buying and arrest the free fall in home values that has erased roughly $20 trillion in housing wealth since the market peaked in mid-2007. What distinguishes our program is the emphasis on fairness.
Unlike the administration’s plan, we do not offer help to borrowers who inaccurately represented their income or assets on their original mortgage. Likewise, there is no assistance for lenders who followed improper lending standards and made loans to people who could not afford them.
Instead, the GOP plan gives incentives to all responsible Americans who want to buy a new home or refinance at a lower rate. This includes homeowners who find themselves temporarily unemployed; “neighborhood investors” who would purchase and rent out homes in areas with a high number of foreclosures; growing families who want to trade up to a larger home; empty-nesters seeking to downsize; and families who wish to relocate to a new area.
Republicans are determined to break the deflationary habit of prospective homebuyers and private capital merely waiting on the sidelines for things to get worse. The scaled-down $8,000 tax credit for first-time homebuyers in the recent stimulus bill doesn’t go far enough to tip the balance in favor of buying.
To spur home purchases across the board, we propose:
• A $15,000 home-buyers tax credit for all purchases of primary residences provided that the buyer pays 5 percent down. Boosted by historically low mortgage rates, this tax credit provides the right incentives to get all kinds of capable homebuyers back into the game – not just first-timers. The credit covers purchases made before July 1, 2010.
We also believe we can put a dent in the housing inventory glut by encouraging neighborhood investors. Current law provides incentives only for the purchase of owner-occupied homes. To encourage neighborhood investors to buy and rent out these homes rather than leaving them empty eyesores that further drag down home values in the area, House Republicans propose:
• An equalizing of the treatment of a home purchased for occupancy with a home purchased for rental purposes (defined as being rented to the same tenant for at least 181 days out of the year). The same exclusion from taxes for any future appreciation in the home value applies. This covers purchases made before July 1, 2010.
On the refinancing side, House Republicans plan to help keep people in their homes by proposing the following:
• A $5,000 refinancing tax credit to help families handle the cost of mortgage refinancing, buy down points or reduce their principal balance. Refinancing would be covered through July 1, 2010.
• Incentives for lenders to keep owners in their homes by refinancing mortgages and lowering monthly payments. If the homeowner agrees to share a portion of future home appreciation with the lender, both lender and borrower will be exempted from taxes on eventual profits. Nor will the borrower incur any tax liability as a result of the refinancing. This applies to refinancing through July 1, 2010.
The latter incentive instills a sense of shared sacrifice between borrower and lender. That’s a far cry from the administration’s plan for the government to step in foot the bill to modify the mortgages.
The housing crisis remains at the vortex of the current economic storm. We have to focus our efforts on stabilizing home prices and repairing the disparity between sellers and buyers.
These alternative solutions are House Republicans’ best way to reconcile two critical demands - taking swift and bold action in the face of a national crisis, and instead of rewarding bad or irresponsible behavior, rewarding the great majority of responsible homeowners.
President Obama says he values bipartisanship. By putting forward these constructive solutions to our nation’s most urgent problem, we are holding the door open for him.
It’s now up to him to walk through it.
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