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Here we are, well into the aftermath of the financial crisis that torpedoed home values across the country, sent mammoth financial institutions into the poor house, and drove unemployment numbers toward the double digits. The government, for its part, has taken increasingly drastic steps to put the real estate market right again, to mixed effect. From rock bottom interest rates to massive loan modification programs to tax credits to entice first time homebuyers, we’ve seen a lot of effort from Uncle Sam. With signs of a recovery mounting and buyers starting to emerge from the woodwork in greater numbers, the question becomes whether we are doing too much to spur a recovery.
New homebuyers, for example, already have a pretty sweet deal going. Currently, if your credit score is up to snuff, you’ll be able to obtain a mortgage at historically low rates and in addition you’ll get an $8,000 tax credit. Speaking to friends and siblings, this alone seems to have generated a lot more interest in purchasing a new home to get while the getting is good. Yet apparently that wasn’t enough, and some prepared remarks from the Secretary of Housing and Urban Development suggest that not only will you get an $8,000 tax credit, but in the near future you may be able to use that $8,000 credit as a down payment for your home. Wow.
The concern here is that pushing too many people towards housing too fast will end up re-inflating the housing bubble, and the concern here is somewhat valid. Super-low mortgage rates and little to no down payments are in part got us into this mess in the first place. Let’s not also forget that the loan modification programs are being spearheaded by government-owned mortgage giants like Fannie and Freddie. Both of these institutions are bleeding billions of dollars a quarter, and that money is being provided by taxpayers. We don’t have this cash lying around, either, we’re borrowing it, and the ballooning deficit has caused widespread concern as well.
Ultimately we do want these efforts to work, and we do want to Loan Modification Fix - July 20th, 2009
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