Foreclosure Act Does Squat for Homeowners

The measure is little more than a gigantic tax break for homebuilders.
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A coalition of national organizations isn't happy about the Foreclosure Prevention Act, which the Senate passed last week.

I can't argue with them.

Why use taxpayer money to aid industries whose practices wreaked havoc on our nation's economy?

Representatives from numerous organizations assembled this week at a press conference in Washington, D.C., to call upon the House of Representatives to fix the legislation, which includes billions in taxpayer-funded breaks to homebuilders and financial-services companies.

Advocacy groups included the Laborers' International Union of North America (LIUNA), ACORN Housing, a national nonprofit housing counseling group, and Citizens for Tax Justice, a Washington, D.C.-based tax group that promotes fair taxation. LIUNA, which represents construction industry workers, estimates that more than a 350,000 construction workers have lost jobs due to the subprime crisis, including 51,000 in March alone.

Critics of the legislation say the measure doesn't do enough to help individuals and families who are now suffering the consequences of a stalled economy. Instead, it aids the homebuilding and financial-services industries, who are in dire straits because of their own actions.

"Corporate homebuilders won in the Senate and struggling homeowners and working people lost," said Terence M. O'Sullivan, LIUNA general president. "We believe the House of Representatives can correct that and we are going to keep fighting on this issue until the Foreclosure Prevention Act lives up to its name."

I couldn't agree more.

Homebuilders and financial institutions didn't seem to mind raking in the dough a few years ago when credit was cheap, borrowers were plentiful and home prices were stratospheric.

But now they're crying poverty to Congress.

The Senate's Foreclosure Prevention Act would allow homebuilders, such as

Lennar

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and

Toll Brothers

(TOL) - Get Report

, to continue to count current losses against taxes from previous (and profitable) years -- a $6.1 billion tax break. Homebuilders are presently entitled to "carry back" their losses under a rule that's in effect during 2008 and 2009. But the Senate's measure would extend it for two additional years.

What about the rest of us? Do we get to count our stock-market losses against the capital-gains taxes we may have incurred when the economy was booming? To ask the question is to answer it.

I haven't heard of anyone lobbying for that kind of relief.

The Senate measure also grants a $7,000 tax credit to buyers of foreclosed homes, or homes involved in foreclosure proceedings. But let's be realistic -- homebuyers aren't the intended beneficiaries.

Instead, financial institutions saddled with too many properties as a result of bad loans would be the ultimate winners -- including many of the same financial institutions who marketed subprime mortgage products and raked in the fees when borrowers were hungry for cash.

The tax credit would create even more competition in the housing market for middle-America homeowners who haven't defaulted on their loans, but who are simply trying to sell their homes. A house that comes with a $7,000 tax credit could be more attractive to potential homebuyers than others on the market.

When the government caves to industry lobbyists amid an economic downturn and hands out big tax breaks, those same industries have less reason to exercise caution during better times.

I don't pity the banks who are now stuck with a glut of foreclosed properties. I have no reserves of mercy for homebuilders who were able to ratchet up their prices when inventory was tight and buyers plentiful. Throwing taxpayer-funded relief their way is a go-ahead to engage in the same greedy business practices when the economy's health improves.

Businesses have no motivation to hedge their bets as long as their powerful lobbies and friends on Capitol Hill are willing to help soften the blow.

Which industry will come crying next?

Imagine -- even a decade from now -- an oil crisis that shakes the financial health of companies such as

Exxon Mobil

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, which racked up a historic $40.6 billion profit last year. The hypothetical scenario of throwing taxpayer money at the oil industry years from now doesn't sit well with me -- especially when I'm presently feeding it $3.39 per gallon at the pump.

But the Senate's Foreclosure Prevention Act would basically provide the same type of relief to homebuilders and financial institutions, whose practices brought the economy down along with them.

Hopefully, the House of Representatives will have the presence of mind to bulk up taxpayer reserves for those who need it most during a tough economy -- everyday citizens who are paying the price for a mess created by industry greed.

Suzanne Barlyn is a writer in Washington Crossing, Pa.