Construction Informer

There is a storm quietly brewing that may just fizzle out and end up being no more than a summer’s afternoon shower. Still, there may be seeds of wisdom in it that we can all take to the bank, or not.

Senate Bill 2636, called The Foreclosure Prevention Act, is supposed to help citizens get out of financial trouble after investing in home mortgages and later waking up to realize they would have to pay a lot more every month than they could afford in order to stay in the homes. For the initial investors, the ones that packaged these loans and sold them around the world, it was kind of like packaging bets on a race that included both four-legged and three-legged horses. It’s just that neither the three-legged horses, and the people betting on them, knew they were in the race.

In these hard economic times, and election year, it garners a lot of press to propose legislation that will help the poor suffering masses, and so we have this bill. There are a number of provisions that basically make it easier for people to sign for a mortgage and then later renegotiate at “absolutely no cost to them.” Is this starting to sound like a motorized wheel chair ad? Well, maybe the cost isn’t to them but it will be to somebody and that somebody will be other people who take out mortgages. I can already see a line item on future mortgages that reads something like: Mortgage Renegotiation Fee.

Of course it gets murkier. Now, the Laborer’s International Union of North America (LIUNA) puts forth the concept that buried deep within the bill is a provision that will let America’s homebuilders recoup losses they suffered even though they encouraged the whole scheme. The organization claims there is a “carry-back” provision that allows builders to pass current year losses back five years, in effect offsetting profits during those times. And what times they were! Record profits during those years are now eligible for record deductions. LIUNA says the large corporate homebuilders stand to significantly reduce their taxes on a record $16 billion in profits just for 2006. Here’s what the LIUNA general president Terence M O’Sullivan says:

“This bill will force American taxpayers who are already struggling with foreclosure, job loss and shrinking retirement savings to pay again for homebuilders’ reckless and unethical behavior. Corporate homebuilders are tone deaf to even ask for it and Congress should not acquiesce to it. This bill needs to be fixed so it does not cause further damage by rewarding those who helped cause the crisis and who can well fend for themselves.”

LIUNA claims that as the market matured and more buyers were needed in order to fuel the pace of new home construction the large homebuilders steered their customers toward the sub-prime mortgages through their own mortgage subsidiaries.

My guess is we will never really know the truth and this bill, like most Congressional efforts these days, will die with a whimper while those who championed it take credit for at least trying to help out the less fortunate. But if I was a homebuilder, knowing what I know about my own operations, would I actually take the tax advantage if the bill was enacted? This is the place where all that rhetoric about ethics really gets tested.

Others Say: Although the bill may save your hide if you realize that the mortgage is just too much, even with all the loans you will have to borrow, it can be a desperate measure. Use your credit card wisely and invest wisely, whether it is for a mortgage, or for other things like travel insurance , or car insurance.

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