The vast majority of homeowners are making their payments every month, even now. Some of them are trying to sell their homes, and worrying about the dropping prices. Republicans and Democrats in the Senate have a message for these people: Sorry, suckers.
Johnny Isakson, a Republican from Georgia, wants to give a $7,000 tax credit to people who buy foreclosed properties, and the bipartisan bill in the Senate includes this idea. Let’s count the ways it is a bad one. First, it is unnecessary: The drop in housing values is already giving buyers ample incentive to make purchases. (They may be waiting for the market to hit bottom before buying, but this tax credit is not going to change that calculation.) Second, it is therefore inefficient: The credit will grease a lot of transactions that would have happened anyway.
Third, it is grossly unfair. People who bought a home they could afford and honored their obligations will take a hit. They might have to drop their selling price by $7,000 to match the foreclosed property up the street. The bill would punish these people, for no real benefit to the economy.
The bill also includes a $4 billion fund to buy foreclosed properties. Why bail out the lenders this way? Unless there is serious risk to the financial system, lenders should pay the price for mistaken investment decisions. The many parts of the country where people behaved responsibly during the housing boom should not.
Our friends on the Hill tell us the bill could have been worse. It doesn’t force a rewrite of millions of mortgage contracts, for example, which Democrats have been seeking. Fair enough. But the bill has some distance to go before it would be worth passing. Isakson’s $7,000 tax credit should be the first thing to go.