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Monday, July 28, 2008

American dream lost?

Down payment assistance a fatality of the homeowners rescue bill.

The recently passed (and hopefully soon to be signed into law) bill that would provide some relief to at lease an estimated 400,000 US homeowners had at least one casualty buried within its 1000+ pages.

President Bush has long wanted to kill off the so-called charitable down payment assistance programs, such as Ameridream, which purported to give home buyers their 3% minimum down payment (as required by FHA). The Ameridream program long ago lost its tax exempt cache when the IRS ruled that the requirement for the seller to contribute a like amount to Ameridream, plus a fee for processing, meant that the Ameridream “charitable contribution” was neither a real charitable contribution nor tax deductible. The program was continued, even after that ruling and has been extensively used on people with little or no money for a down payment. Bush argued that these programs just encouraged people who can’t afford a house to get in over their heads – certainly an argument with some merit.

So, once the homeowner assistance bill becomes law, Ameridream and other like down payment assistance programs will become history – at least until the sharpies who rule these things figure out a new way around the laws. There will always be people around the edges of any legitimate business trying to figure out ways to cut corners or make a buck off something that is illegal or only marginally legal.

I read an article last night about people in the finance worked who are already dreaming up new “financial instruments” to replace the securitized mortgage instruments that recently went bust. The article was about people who are packaging up commodities futures contracts and creating tracking indexes that can be bought and sold. As best as I can figure, it involved people who will be betting on the success or failure of other people who have bet on the rise or fall of the price of commodities sometime in the future. The things that I get a kick out of is that no one in this whole chain of events actually owns anything tangible. It makes about as much sense as betting on the pool of bettors who put money on specific horses in a horse race. You could bet (invest, as they would prefer to call it) on whether a horses odds would go up or down, right up to the start of the race, at which time, your options would expire. No wonder so many idiots lose so much money when these stupid houses of cards fall apart. It’s all a big pyramid scheme with no underlying real value.

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