The future looks bleak...
The future looks bleak...
It's hard to be hopeful...
In a better world, politicians would talk to voters as if they were adults. They would explain that discretionary spending has little to do with the long-run imbalance between spending and revenues. They would then explain that solving that long-run problem requires two main things: reining in health-care costs and, realistically, increasing taxes to pay for the programs that Americans really want.
But Republican leaders can’t do that, of course: they refuse to admit that taxes ever need to rise, and they spent much of the last two years screaming “death panels!” in response to even the most modest, sensible efforts to ensure that Medicare dollars are well spent.
And so they had to produce something like Friday’s proposal, a plan that would save remarkably little money but would do a remarkably large amount of harm.
They want to eliminate the tax deduction for home mortgages. That wouldn't exactly help Joe Average.
OTOH, if they removed the mortgage deduction for "second homes", that would be a start.
Of course, the deduction for "second homes" is very important to about 535 people ... in Congress. Wonder how they'll vote.
Also, they want to raise the down payment and interest rates on FHA mortgages, to get the govt out of the mortgage-backing business.
There are some points about this latter item that I can agree with. The down payment on FHA mortgages was raised from 2.25% to 3.5% about 18 mos. ago. This is not all bad, since it means that homebuyers will be encouraged to save some $ before jumping into home ownership. There may be some impact on VA mortgages as well.
This represents a big about-turn from the tax credits given to first-time & move-up buyers that ended just one year ago. Most Realtors® didn't really favor those large tax credits, as it artificially inflated the real estate market. Guess they didn't work out so well?
This may present another problem, though. Now that we have bunches of short sales and foreclosures on the market ... a lot of them certainly in the price range for Joe Average, who is going to be able to buy those houses? FHA mortgages soared since 2006 because conventional lenders made getting a mortgage much more difficult, even for buyers with good down payments and good credit ratings. Will it be the investors with cash, who will rent them out until the real estate market rebounds?
If only investors can buy those lower-end homes, they may be getting them at even better bargain prices (since nobody else can buy those homes), and the lenders will take an even bigger hit? That means a bigger hit for FHA and for those mortgage insurors (does AIG sound like a familiar name?)
FHA has already reduced the amount that sellers can contribute to the buyers' closing costs from 6% to 3%. Thus, that means that the FHA buyer has to come up with more cash than before. Here in PA we have a 1% transfer tax, which helps bring closing costs up to around 5.5%. So, a buyer needs that cash at settlement.
The tax credits for first-time buyers was a short-term solution with long-term consequences. I sold 6 homes in 2010 that benefited from that tax credit and each of them would have bought a home even WITHOUT the credit ... the tax credit just sweetened their deal. Does the word "waste" have a familiar ring to it?