The Obama administration will extend mortgage assistance to investors for the first time. While this will help some who bought homes to use as rental properties, perhaps for extra income or to boost their retirement, it will also help speculators who pushed prices through the roof and made the housing bubble bloat.
In February, HousingWire broke the story that the Treasury would cap Home Affordable Modification Program modifications to property investors.
In January, the Obama administration expanded the program to allow homes occupied by someone other than the owner. There were other changes as well, including higher incentives for reducing principal, writing down second liens and loosened debt-to-income qualifications.
Until then, such programs were only available to owner-occupied residences, and not to the investors, who, as Bloomberg contends in a story, often misreported their intentions to occupy the property and thus took on more leverage. Because of this, they appear to have significantly boosted the amount of real estate debt during the boom, and to the deleveraging and delinquency that followed.
While it is true that the vacant properties left by these investors are lowering neighboring home values and helping slow an already sluggish market, is it really fair to give irresponsible investors a bailout? Would it not be more reasonable to use this money to help underwater homeowners who actually intended to live in their homes and not take advantage of the market?
A September Fed report that says speculators are “no one’s first priority for receiving taxpayer dollars,” but that providing help to large numbers of multiple property owners and “blanket modifications offered regardless of occupancy” will be more efficient than more restrictive programs.
Calculated Risk points out several concerns. Namely the example Bloomberg offers of Jim Russell, who bought several homes “more than 10 years ago” that are now worth “far less than he owes.” The man says rent has fallen in the last 10 years, and he must now spend more than $20,000 a year just to keep them up.
Says Calculated Risk: “How can this be? I'd like to know more. I wonder how far rents have fallen in "over 10 years" and if Russell took out money during the housing boom. This doesn't appear to add up...”
I have similar thoughts.
The moral hazard arguments that will accompany this move are obvious and well founded, and the argument of “well, we bailed out the banks so why not bail out investors?” argument is likely to be repeated over and over during this debate.
But the question is now whether clearing up the delinquencies and foreclosures on the market generally, regardless of occupancy status, is worth essentially bailing out the people that bet on the market and lost. Does the term “risk” not mean anything any more? Or has it just become so important to speed up the market that we’re willing to take such steps?
Sound off in a comment below or by sending me a tweet. I’m sure we’ll be hearing about this move far beyond May and well into November.