Texas Builders & Realtors tout $500 million mortgage loan program

Does this make sense while other agencies are tightening budgets to address a $18 Billion deficit and teacher, fire and police jobs are cut?

Half a Billion dollars!!! – “It’s the single-largest financing initiative for state homebuyer funds in the 27-year history of the program and serves as the state’s response to the recent expiration of the federal homebuyer tax credit,” said Gordon Anderson, a spokesman for the Texas Department of Housing and Community Affairs (TDHCA).

TDHCA announced that the State will make available the first $50 million under an “unprecedented $500 million in new mortgage revenue bond authority” (Bond 77). The timing and sheer magnitude of this program is suspicious, and we wonder who the real beneficiaries are. Is it the low to medium income Texan home buyer seeking the American Dream, or is the program more for the builders, realtors and mortgage lenders?

See Why the Housing Stimulus and FHA, Fannie Mae and Freddie Mac loan guarantees put Taxpayers (and the economy) at Risk for our point of view. Some builders have advertised their own equivalent of the federal homebuyer tax credit. Think of it as a sales price or rebate offer.

Promoted as helping families overcome the biggest obstacle to buying a home, the Bond 77 funds will be used for low-interest loans and down payment and closing cost assistance. That means borrowers will have less skin in the game and are at greater risk of foreclosure if they have financial problems and must sell, but inflated property values have fallen. It also is promoting the American Dream to more.

Another program that puts buyers at greater risk is, in our opinion, the USDA Home Loan Program. It offers zero-down loans to low and very-low income families needing affordable housing, but we worry that the program actually suckers people into buying homes built on rich farmland. This is some of the most expansive clay soil in the country – soil that’s great for farming but terrible for home building. It shrinks when dry and expands up to 30% when wet, which is why it tends to crack foundations and cause all sorts of structural problems in homes unless builders spend thousands of dollars extra to properly engineer the foundations. Too often they don’t, especially with the starter homes that the USDA Home Loan Program targets.

The American Dream of homeownership is a goal that sounds nice, but didn’t this cause the housing bubble and global collapse in the first place? See Texas Homebuilding and the Global Financial Collapse.

So who really benefits from artificial market stimulus? Is it really the buyers, or are they presented with a false “perception” of value created by tax credits, rebates and fire sales? The housing industry can use these tricks to inflate appraisals of neighboring homes. Appraisers must compare actual sale prices instead of list prices, but they don’t factor in promotional offers such as lower interest rates or down payment and closing cost assistance.

And finally, how can Governor Rick Perry justify this TDHCA stimulus at this time? It seems like a massive gift to his builder friends in the Texas Association of Home Builders?