Bailout and Home Builders

The Bailout for the financial sector is not completed and now the homebuilding sector is asking for help.

They contend that the $7500 tax credit for first time home buyers did not stimulate demand and they want a $15,000 tax credit for all home buyers.

I don’t know if they get it. They were one of the biggest causes of the current crisis.

Why do I say this? Just a few years ago builders figured out how to work the financial system. They started their own mortgage companies or partnered with lenders and then advertised for low quality borrowers. You remember the ads. No money down, bad credit, in bankruptcy, one day out of bankruptcy, etc. these ads worked very well and brought lots of buyers who under normal circumstances could not qualify for a mortgage. Then the builder who was making a huge profit on the home pressured their own people or their partner lender to make the loans. These builders lined their pockets with millions of dollars using this tactic.

If you don’t believe what I am saying all you have to do is drive through builder communities that were built within the last 6 years and count all the foreclosures. Now that their bad practices are biting them back they want relief.

Here is what I think should happen to make sure we do not end up in the same financial situation that the Country is in today.

First we must eliminate builder owned mortgage companies by making that an illegal practice.

Second, we need to eliminate recommended lenders that pay to do business with the builder. The builder hides this illegal activity by saying the lender is paying for advertising but everyone knows that the lender is paying for mortgages. Which happens to be illegal?

Third, the government needs to eliminate computer underwriting. This is one of the main causes of the current crisis. Once the computer underwriting was instituted the ratios that a borrower could have went up dramatically. I saw mortgage application with back ratios above 60% turned down by our bank (because we manually underwrite) and that same borrower would be approved and close with another lender who used this automated system. Now those lenders need bailed out.

Forth, they need to increase the funding for the SEC to enable them to do there jobs. This can be done by letting the SEC keep the fees it currently collects from public companies.

Fifth we need to have mortgage brokers as strongly regulated as other financial institution. Many brokers have acted like it's the wild, wild, west. You have read the stories of inflated home values, fraud, and a variety of illegal activities. They need regulation.

If we change our ways we can turn this ship around and get this economy moving again.