What just happened?
How did eight years of a supposedly "conservative" Administration get us to this point where the country feels like a tapped out Vegas binge gambler ejected from the plush casino into the harsh mid-morning light without even cabfare in his pocket?
We have a general framework for explaining it: Invade the World / Invite the World / In Hock to the World.
But, with some digging, the small pieces of the puzzle are starting to come into better focus.
For example, remember the big emphasis that Bush and Rove put on "faith-based initiatives" as a pillar of their "compassionate conservatism"? I wrote a few articles about that topic in late 2000, but it was hard to pay attention because it seemed so boring: the ACLU made the expected complaints, you heard the usual responses, yawn ...
What almost nobody noticed was how faith-based initiatives tied into the Bush-Rove jihad against down payments in the service of their goal of boosting minority homeownership by 5.5 million households.
You just reminded me of something a real estate developer told me a couple of years ago... He built subdivisions in an urban (i.e. black) part of town and his marketing campaign involved putting ministers on commission.
They'd stand in the pulpit and declare that buying a home is the first step of fulfilling the American dream and their Christian duty. Every church member who bought a house, the minister got a check.
It was all legal, apparently, if the payments were structured as part of a downpayment assistance program. Legal, that is, until the IRS took the punchbowl away in 2006.
So, one of the things that pricked the Housing Bubble in 2006 was the IRS cracking down on this form of "charity."
Here's a cogent description of the scam from a recent press release by the apartment building lobby. Obviously, the people who rent apartments are biased, but, at least they didn't plunge the world into economic chaos, so they've got that going for them:
WASHINGTON, Sept. 16, 2008 /PRNewswire-USNewswire/ — Congress should pause and carefully consider the consequences before it acts to overturn its recent ban of so-called "charity" downpayment assistance schemes, according to the National Multi Housing Council (NMHC) and the National Apartment Association (NAA).
Under these programs, a non-profit provides a downpayment to the buyer and is then reimbursed by the seller, often a home builder. In 2006, the IRS stripped several of these non-profits of their tax-exempt status, ruling that the programs benefit sellers more than buyers since sellers often raise their asking price to cover the amount they theoretically "donated."
"These circular funding programs come with good intentions but produce loans that are three times as likely to go into foreclosure and merely perpetuate the tragically failed policy of zero-downpayment lending that helped create the current foreclosure crisis," noted Jim Arbury, Senior Vice President for the NMHC/NAA Joint Legislative Program.
"Congress wisely banned these programs in the Housing Stimulus Bill that it passed in July," said Arbury. "Now it is considering stepping back and once again allowing them. This would be a mistake that would lure more individuals into unsustainable homeownership and put taxpayer dollars at risk."
"These loans skyrocketed from six percent of the Federal Housing Administration's mortgage originations in 2000 to approximately 30 percent as of 2004, and now threaten the financial viability of the FHA," said Arbury. "The FHA says it expects to lose $4.6 billion in 2008, an unanticipated loss it attributes largely to seller-financed downpayment mortgages."
"Today, the House Financial Services Committee will consider a bill (H.R. 6694) that would overturn the ban and purportedly protect the FHA by limiting the use of seller-financed downpayment assistance to households with credit scores above 620," explained Arbury. "Unfortunately, the wishful thinking that higher credit scores translate into lower default rates is not borne out by the facts. According to HUD data, even households with the highest credit scores required by the bill are twice as likely to default if they use downpayment assistance."
"This is why seller-funded downpayment assistance programs have come under fire from the IRS, the Government Accountability Office and HUD's Inspector General's Office," Arbury concluded. "For its own financial health, the FHA should not be forced to return to insuring loans that involve seller-funded downpayments."