Filed under: Economic data, Politics, Housing

The senate yesterday approved a bill aimed at stimulating the housing market. According to the AP: “The plan contains $4 billion in grants to local governments to purchase and refurbish foreclosed homes, new authority for says to issue bonds to be used to refinance subprime mortgages, and a temporary $7,000 tax credit for people buying new homes or properties in foreclosure.”

So the Senate decided that local governments should get $4 billion to get into the real estate “flipping” market. They will buy these homes, fix them up and then re-sell for a profit? Is that the business government is supposed to be in?

Most local governments have problems fixing potholes and keeping streetlights working, and our wise senators believe that they’ll solve the housing crisis?

The real problem right now with foreclosed homes is that the banks refuse to bite the bullet and sell these homes for lower prices. I’ve spoken with a few people in the real estate market trying to purchase foreclosures and they all said that the banks aren’t prepared to take a loss. So now here comes the senate and states let’s give $4 billion to local governments and they will overpay the banks for these properties. Great, so in an election year the US Senate has basically screwed prospective home buyers, choosing instead to bailout the banks.

What a surprise.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer’s fund has no position in any stock mentioned, as of 4/3/08

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Filed under: Law, Housing

So our all-wise representatives in Congress got together to try to come up with some kind of response to the housing crisis — this is an election year after all — and here’s what they came up with: tax breaks for home builders.

The $6 billion package will let homebuilders use losses from 2008 and 2008 to offset income in the previous four years, rather than the usual two.

It’s hard to know where to start in describing how incredibly idiotic this is but I like a good challenge. First of all, we’re giving tax breaks to companies that got into this mess because of big over-investment and oversupply. Aren’t we supposed to use tax breaks to encourage investment in areas that need further investment, not the opposite? This just makes no sense.

Why this is stupid, part two: These handouts may allow builders to avoid distressed sales which could have presented a fabulous, once in a lifetime opportunity for first-time home buyers to gain their piece of the American Dream. Instead of allowing regular people to capitalize on massive business’ blunders, our government has stepped in and used taxpayer money to keep the builders happy. That’s stupid, and it’s also wrong.
Further, the Associated Press reports that the bill contains a $7,000 tax credit for people buying properties in foreclosure.

This might sound like a good idea but foreclosure investors generally aren’t stupid. The tax credit will be factored into investors’ calculations about what they have the ability to pay, and much of that tax credit will simply be used to bid up foreclosed properties to higher prices — which benefits the banks at the expense of taxpayers. I’m beginning to discern a pattern here.

It’s no surprise that Congress’ efforts to intervene are pathetic and counterproductive, but you still have to stand in awe of the tackiness of this “bipartisan agreement.”

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Filed under: Deals, Law, Bank of America (BAC), Countrywide Financial (CFC), Housing

The troubles never end for Countrywide (NYSE:CFC), but that may be its own fault. According to The Wall Street Journal: “A federal judge has authorized an in-depth probe of Countrywide Financial Corp.’s mortgage-processing systems by bankruptcy investigators hunting for evidence that the large mortgage lender has systematically abused borrowers.”

Who knows? Maybe Bank of America (NYSE:BAC) will still walk away from its deal to purchase the mortgage company.

Among the charges is that Countrywide got people into mortgages and pumped up fees as customers made payments late. The court is concerned that the “fees” were no accident.

Similar charges keep jumping up as the world learns more about how Countrywide was run. As the old saying goes, where there’s smoke there’s fire. The number and depth of concerns about how the company made loans and handled customers appears to increase by the day.

The top executives at CFC are getting rich packages as the buyout by Bank of America continues. But, even the bank only has so much patience if the legal bills keep piling up.

Douglas A. McIntyre is an editor at 247wallst.com.

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BigBadBus writes “The BBC is reporting that NASA’s twin spacecraft designed to obtain stereo images of the Sun have recorded a Solar Tsunami. The feature includes a fascinating motion picture of the images captured.”

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Wade Roush writes “21, the top motion picture at the box office last weekend, has everyone talking about the real identities of the MIT blackjack team members fictionalized in the motion picture and in the 2002 book, Bringing Down the House, on which the film is based. Last week a number of stories pointed to former MIT student and Las Vegas resident John Chang as the model for the Micky Rosa character, the club mastermind played in the motion picture by Kevin Spacey. But Boston-area Internet entrepreneur and real estate developer Bill Kaplan is saying that if anyone is the basis for Micky Rosa, it’s him. Turns out Kaplan now battles the “e-mail churn” problem as CEO of Newton, MA, startup FreshAddress, which helps companies correct the outdated e-mail addresses in their customer databases.”

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AbsoluteXyro writes “According to a Space.com article, NASA scientists have discovered the smallest known black hole to date. The object is known as ‘XTE J1650-500′. Weighing in at a scant 3.8 solar masses and measuring only 15 miles across, this finding sheds new light on the lower limit of black hole sizes and the critical threshold at which a star will become a black hole upon its death, rather than a neutron star. XTE J1650-500 beats out the previous record holder, GRO 1655-40, by about 2.5 solar masses.”

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