Foreclosure Prevention Act Rewards Giant Homebuilders Complicit in Subprime Scam

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by The Other Katherine Harris
Featured writer
Dandelion Salad

The Other Katherine Harris’s blog
April 3, 2008

Not to be outdone by our scamming Wall Street bankers, our scamming builders have their hands out, too. If the Foreclosure Prevention Act goes through as written, they’ll profit by as much as $33 billion in tax breaks, according to a new construction industry report: A Multi-Billion Bailout for Those at Fault: Corporate Homebuilders, the Housing Crash and the Mortgage Crisis [pdf], issued by LIUNA (the Laborers’ International Union of North America, which represents 10 million construction workers).

What the National Association of Home Builders’ lobbyists have slipped into legislation meant to help troubled homeowners is a “carry-back” provision allowing builders to apply their losses from 2006 and 2007 against taxes paid on profits as long ago as 2003. This would give them a powerful incentive to dump unsold properties at prices that will further depress the housing market – in addition to billions in savings, at public expense and at a time when we can ill-afford lost revenue.

The builders also stand to benefit enormously from recent changes at Fannie Mae and Freddie Mac, permitting more loans and higher limits – another victory for the NAHB’s so-called “Build PAC”, won in concert with lobbyists for the National Association of Realtors. These are the two largest business PACs in the nation and the builders have been pitching a fit lately. In February, the NAHB angrily announced suspension of all political donations, until its demands were met. Since the group doled out $3.5 million for the 2005-2006 election cycle, their sudden tight-fistedness was no doubt noticed.

Significantly, many homebuilders have cashed in on the mortgage trade, not just construction. Their financial subsidiaries leapt onto the predatory lending bandwagon in a massive way and steadily escalated that aspect of the business. In 2006, for instance, giants like KB Home, DH Horton, Lennar, Pulte and Shea generated from 60-400 percent more subprime loans than during the prior year (with little or no increase in prime loans).

And let’s remember that these guys made out like oilmen for ages – indeed, substantially better for a long while. In September of 2005, financial analyst Jon Markman wrote, “Stocks of the country’s two largest home-builders, Pulte Homes and D.R. Horton are up 580% and 460% over the past five years, respectively, while shares of the two best-performing major international oil companies, Total and BP are up 101% and 47%.” By contrast, the broad market had then lost 20 percent of its value since September, 2000.

Yes, home sales are down now, but do you really think we need to worry about these huge corporations that fed so richly on the speculative housing bubble they helped inflate?

The president of LIUNA doesn’t. Terence M. O’Sullivan stated, “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.”

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