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A bailout for real estate speculators

at 11:18 AM ET, 03/05/2012

Expanding its push to fill vacant homes, the Obama administration is giving mortgage aid to real-estate investors who bought multiple homes during the housing bubble.

Having recently expanded its TARP-funded Home Affordable Modification Program, the administration will now extend the program to landlords for the first time.

“Landlords can qualify for up to four federally-subsidized loan workouts starting around May, as long as they rent out each house or have plans to fill them,” Bloomberg reports. “The program pays banks to reduce monthly payments by cutting interest rates, stretching terms, and forgiving principal.”
(Victor J. Blue - BLOOMBERG)

Until now, the White House had only extended mortgage modification to owner-occupied homes, rather than real-estate investors and landlords—a group that includes the kind of buy-and-flip speculators that fueled the bubble in the first place. At the peak of the bubble, almost half of all new mortgages were linked to investors trying to make money in the states with the biggest housing bubbles, according to a September report by New York Federal Reserve that Bloomberg flags. “In part by apparently misreporting their intentions to occupy the property, investors took on more leverage. . .these marginal borrowers appear to have contributed substantially to both the increasing amount of real estate related debt during the boom, and to the rapid deleveraging and delinquency that accompanied the bust.”

But the huge overhang of vacant properties has continued to hold back the entire housing recovery. And the Obama administration has had trouble getting enough distressed homebuyers who are living in their homes to participate in HAMP. So extending help to landlords who own multiple properties—not all of whom were speculators—could make the program more effective and help lift the stagnant housing market that’s holding back the entire economic recovery.

That said, the change is likely to raise the hackles of those who believe that taxpayer money would be better spent on underwater homeowners who bought homes with the intention of living in them, not to game the market. As the New York Fed notes, such real-estate speculators are “no one’s first priority for receiving taxpayer dollars.” Calculated Risk raises other questions about which landlords will qualify for the expanded program.

 
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