Kids get cribs in homebuyer tax credit scheme

I would love to have taken advantage of the $8,000 homebuyer tax credit the government was giving out this year. All you needed to do was make below a certain income and have not owned a home in the last three years and the credit was yours if you bought a new crib (which you were already likely to be getting at a steep discount and with a mortgage with a low rate). I fell back because I wasn't ready to buy yet but apparently, there were some pretty affluent children who were. That's right: more than 580 people under age 18 received tax credits worth more than $4 million under the program, which was meant to help legitimate first-time homebuyers and to prevent more foreclosures. Of course those homes weren't bought by the kids themselves but by their parents who wanted to get around the government's income guidelines by committing fraud. Of course that was revealed last week, as Congress is in a debate over whether to extend the credit beyond this year. Check out some of these stories on it: ABC News Wall Street Journal Bloomberg

photo: freedigitalphotos.net

Why the homebuyer tax credit should be extended

I saw this question on Twitter yesterday and had to post it: Do you think the 1st time homebuyer tax credit should be extended past November?

The credit was approved by Congress last year to try and fix the foreclosure problem. It expires soon, so Congress is debating whether to extend or even expand it to a $15,000 credit.

My answer is it should be extended for another year. Here's why: though some are optimistic the recession is ending, we can't afford another "-less" recovery -- as in "job-less" or "homebuyer-less". The economy needs housing stability to be really strong and that's not possible until people have jobs again. Employment will likely be one of the last things to recover, so without help, people still won't be making major purchases like homes.

Note to haters: I'm NOT suggesting that the government subsidize home purchases for the unemployed. My point is that average people don't judge the economy's strength like economists do; we go by what we see in our checkbooks and what's happening around us. If a lot of my friends are still out of work or being laid off, I'm not likely to be comfortable borrowing a few hundred grand for a new crib.

On the other hand, the one good thing about the recession is that it caused working people to re-evaluate their financial habits. I believe a year from now, many people who weren't previously able to save enough for a down payment and to clean up their credit will have done so, and at that point there won't be a real need for an $8,000 or $15,000 tax credit anymore.

But that's a year from now. Until then, I fear for people like my friend who's home in suburban Cincy has lagged on the market for more than a year without a single offer, despite repeated price drops and an attempted short sale. Congress should renew the credit.

Obama's 100 Days, my 100th post

I discovered something interesting a second ago: this is my 100th post on this blog. Wow. I guess it's appropriate that this post is about President Obama's first 100 days. Let's get right to it:

Yesterday I asked readers to grade the president's performance on three economic areas: his handling of the housing crisis, the Wall Street bailouts and the economic stimulus package. Now, here's my grade:

Overall, I give President Obama an "I" for incomplete on his performance on the economy. That's not a bad thing but it's not great, which is the point. Despite his high approval rating and Democrat-controlled Congress, the idea that the economy would improve this soon because of anything the president has done is unrealistic. It's easy to blame Bush's eight years for the problems but our economy had fundamental problems -- most notably all of us living off credit -- long before that.

On specifics, I give Obama a B on housing, mostly for signing a package that gives an $8,000 tax credit to new homebuyers. On the stimulus package, he gets a C. I'm optimistic that much of what's in it will help, but it's taking a while for federal and state bureaucracies to start spending the money, and I'm no fan of bureaucracy anyway. There's always waste and corruption involved. That grade could easily go to a B or an A, especially if any of this funding for improving passenger rail service actually happens.

Last, on the Wall Street bailouts, another C. Something had to be done to prop up the financial system. Obama stepped up to the plate depsite how unpopular investment bankers are and so far none of the remaining big banks has failed. But that doesn't mean they won't, and most people still can't get over the AIG bonuses.

What's your take? Do you think the economy is getting any better under Obama?

Michael Eric Dyson & President Obama

I'm back on the Michael Eric Dyson Show this afternoon, discussing the economy this afternoon at 1:45. We'll be talking about the Obama administration's work on a "Cardholders' Bill of Rights" for credit card consumers, the fact that men are suffering more from job losses in the current recession than women and the troubles in the auto industry. Check the Dyson web site to see where the show airs in your city.

In the meantime, tomorrow marks 100 days in office for President Obama, so tomorrow's post will be about how he's done on the economy so far. How would you grade the president on his efforts on housing, the Wall Street bailouts, the economic stimulus package and other initiatives to turn the economy back around? Leave your grade in the comments section.

Aleks and Bobby, the story of first-time home buyers

Meet Bobby and Aleks. He's 27. She's 24. He's a personnel recruiter. She does development and fundraising work for nonprofits. They're getting married this September after a five-year relationship. They want to buy their first house before then.

We're going to follow them as they do. Bobby and Aleks have agreed to let me blog about every step of their homebuying process so that you can get a window into one of the most complicated financial decisions a person (or couple) will ever make. A few other things you should know before we get started:

Bobby and Aleks live in Lowell, Mass., about a half-hour outside Boston. The Boston area is still one of the most expensive in the country to buy a home despite the depressed housing market. Lowell is significantly cheaper than Boston but there are still headaches: condo fees can push a mortgage payment up by about 50 percent. They're in a good position, though: they're already pre-approved for a mortgage of up to $200,000, even as it's tough for many people to find a loan. They expect to spend between $150,000 and $175,000 for a condo or between $175,000 and $200,000 for a single family.

You'll get regular updates on their search here, and I'll tag all of those posts under Aleks and Bobby to make them easy to find. If you have any questions for them, feel free to post in the comments section.

Can I sue the homeowners association?

A question I got over the weekend:
With homes falling into foreclosure...HOAs [condominium homeowner associations] are also suffering. Is it possible to sue your HOA for not abiding by the covenant?

The quick answer: of course!

This happens all the time and my guess is that HOA's are being sued left and right given the state of the housing market and the economy broadly. If you don't know what an HOA is, pretty much its like the property management group that you pay when you buy a condo. Homeowner associations are just that: run by the owners of all the properties in a building or community and set up as a legal entity so they can collect fees and provide services.

HOAs are great if they deliver on all the things they promise, which can range from high-speed Internet service to trash pickup to landscaping. The problem is that groups of homeowners all with their individual wants and needs don't always make for great management. Last year I lived in a condo that I leased from its owner. it took 11 months for the HOA to decide it was OK for me to get DirecTV, even though there were already three dishes on the building. It also took about a month to get the lock on my mailbox fixed and water damage to the solarium was there when I moved in and still there when I left.

Which brings me back to the question: can you sue your association if they're not delivering the goods? Yes, you absolutely can. Your agreement to pay fees to the HOA when you buy is typically legally-binding and if one side breaks the agreement, it can be remedied in court. You may want to check your association's bylaws, though, since they may require any disputes go before an arbitrator rather than actually going to court.

Good luck.

The Sad Story of a New Jersey Short Sale

In the week I've been writing about the economic stimulus, I haven't told a real-life story of who's being helped -- or hurt.

But yesterday I heard a story of joy and pain from a friend of mine in New York. For the past few years, she's been living and renting in Brooklyn, but with an eye toward buying a place of her own. When the housing market was bloated, she was priced out of the city, and the burbs in Jersey, so she sat tight.

But things are different now: after a few years' saving, she's got a decent downpayment and good credit. Interest rates are low, and as a bonus the just-passed stimulus bill would give her an $8,000 tax credit this year if she buys.

All that's left is to find a decent place, and now she has: a three-bedroom, one-bath in New Jersey about 15 minutes from the Holland Tunnel. The price: $190 grand, way below what you would have bought anything decent for in the New York area two years ago.

But that's where the pain comes in: the house is so cheap because she's buying it in a short-sale, meaning the person who owned it couldn't afford to keep up with the payments. Rather than going through the hassle of a foreclosure, the bank approved the sale of the property for less than they're owed on the mortgage.

In this particular case, the house was owned by a woman who paid $295,000 for it no more than five years ago. After an accident, she could no longer afford to keep up with the mortgage (although given she bought at the height of the housing boom, it's unlikely the house would be worth what she paid for it today anyway; even without the accident she may well have been one of those "underwater" homeowners that Obama's housing plan is supposed to help).

This is recovery at it's finest and worst: there's no avoiding the ugly necessity that many people will be hurt in order for the overall economy to rebound. Without this sad story of a short-sale and many others like it, many houses would simply go into foreclosure or continue to be owned by people who have no chance of selling them for more than they borrowed.

Will the housing plan help you?

When I posted about passage of Obama's stimulus plan, I got a few comments from readers who were pretty much indifferent. A lot of government spending, a $400 tax break: the tone was that while it might help the broader economy, there's nothing in it for me personally.

So I'm wondering if your attitudes are the same after hearing about the $75 billion housing rescue plan that Obama announced yesterday. If you haven't heard the details by now (and if you haven't you died yesterday and woke back up this morning), Obama wants to help as many as 9 million homeowners by allowing those struggling with houses that are underwater refinance their loans. In English, that means if your house is worth less than you owe because of the drop in the housing market, you be able to get a new, lower-interest loan that reflects the actual value of the property.

You won't have to already be late on your mortgage to qualify, but your payment does need to be more than 31 percent of your income. (That's important because under old, sensible lending rules, banks never would have let you take a mortgage where the payment was more than a third of your income anyway.) One big question I have is whether that 31 percent limit will apply to your gross income or your take-home pay? That could make a big difference for many.

In any event, this seems like a stimulus plan that will help a lot more people directly, though it's unclear whether $75 billion is enough to help 9 million homeowners.

If we keep bailing everyone out, will our kids learn from our mistakes?

The automakers want another $22 billion in taxpayer money to stay afloat, even as they get ready to lay off 50,000 more people and close plants (which will lead to layoffs at other companies). Investment bankers took $700 billion in taxpayer money, yet even Donald Trump says the government needs to force them to lend it out. And they're still giving themselves billions in bonuses. And today, President Obama will unveil his plan for using $50 billion of taxpayer money to help fix the housing crisis. That plan will include helping people who's homes are worth less than they owe on them and those who have subprime and other bad loans refinance.

Is it me, or does it seem like the only people not getting economic help from Washington are people who are doing all the right things?

I know what some of you are thinking so let me give the requisite disclosures: a) I'm not equating the behavior of car executives or Masters of the Universe Wall Streeters with people who need help staying in their homes. Nor am I oblivious to the fact that with the economy in as bad shape as it is that the government pretty much has no choice but to do something -- and that always means spending a lot of taxpayer money.

But none of that allays my central fear, which is that instead of making my generation take a tougher look at our finances and, for those of us with kids, teaching them that managing your money smartly and having ethics when you run a business are important, what we may be doing the opposite by doling out so much cash to people who ostensibly made the biggest mistakes.

Think of it this way: when my 12-year-old watches the news with me, he hears the stories of executives getting fat bonuses and planning opulent retreats. He's not old enough to understand what a credit default swap was and how that guy in the suit contributed to all the "for sale" signs in the neighborhood. Over the summer, my nine-year-old told me "Daddy, I want you to buy a house." I don't know where he got that from, but apparently, the kid understands that Dad's a renter and that there's something he'd like better about me owning.

Is it too great a leap to think he might see some guy on TV who paid $300,000 for a house that's now worth one-third of that, that he could never have afforded anyway, getting the chance to refinance the loan that he never should have gotten? The thought confounds me, so I can't imagine what a kid might make of it.

In any event, we all hope all the money we're spending on 'fixing' the economy is well-spent. But it occurs to me that what really needs to be fixed is our national and personal financial priorities so that next time around, the good guys win.

My three economic challenges to President Elect Barack Obama

The election is over. Obama won by a landslide, no doubt with the help of many readers of this blog.

But even having won a majority of the popular vote and with his party in control of both houses of Congress, making the kinds of changes that Barack Obama promises won't be easy and will require more than political maneuvering. Especially on the economy, much work and sacrifice will have to be made by the same electorate the ushered Obama to power. Here's my top three things that I think Obama will focus on to right the economy, what it will take to get them done, and a few suggestions for all of us to take heed of.

To ensure our economic future, Obama MUST:

1. Push through Congress meaningful healthcare reform that can actually be implemented. His campaign platform called for an aggressive plan to cover all Americans that is sure to be costly, but the challenges are many. A Democrat-controlled Congress will likely support his plan, but the healthcare lobby still looms large. Obama will have to be careful -- and rightfully so -- to make meaningful reform that is affordable to taxpayers and consumers but doesn't deter investment in the medical sciences or cause a catastrophic loss of jobs in the medical care industry.

Our responsibility -- Get healthier. Obesity, high blood pressure, heart disease, diabetes, cancers, HIV infection: For its wealth and relative prevalence of available medical facilities, America is one of the sickest nations of earth. Many of those ailments are not just extremely costly, but preventable. We'd all do ourselves and the new president a favor by eating better and taking a damn walk every day.

2. Re-regulate the financial markets -- but not too much. Wall Street's become too much like a casino, less a place where people take calculated risks that pay off when sound management or daring innovations are successful and more like a gambling parlor where bettors wager (and often lose) money only to sell their bad debts to the next sucker who comes along. Those suckers ultimately ended up being the American taxpayer and that can't continue. Obama's choice for Treasury secretary will be his most important cabinet pick besides outside Secretary of State.

Our responsibility: Continue investing, but do so responsibly. Panicking, abandoning banks that are still solvent and pulling out of 401(k)s is not the way to go. Neither, however, are irrationally bidding up the prices of IPO shares like during the tech boom, or homes like what happened in the earlier part of this decade. Weaning ourselves off credit won't hurt, either, but I'll come back to that later this week.

3. Mandate a financial literacy curriculum in elementary and high schools. Yes, this is a wild-card that wasn't part of Obama's election platform. But it stands, in my opinion, as the number-one challenge to our economic future. The housing bust and credit crisis both have roots in the fact that American schools continue to churn out workers educated enough to earn decent salaries but woefully equipped to know how to handle the money. Obama fails to make this a national priority at the peril of us all.

Our responsibility: First, make sure you understand the basics of personal finance. Pick up 401(k)s for Dummies or Investing for Dummies. Bookmark this blog. Watch CNBC or read the Wall Street Journal then look up terms you don't understand. Then teach your kids what you're learning. By the time they get out of elementary school, your child should have a savings account, a college fund and understanding that using a credit card doesn't mean the money won't have to be paid back.