Pull Plug on Homebuilder Bailouts

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By TERENCE M. O’SULLIVAN


Some of our union members dressed as pigs early this month and demonstrated outside during KB Home’s annual meeting in Westwood for a good reason: KB Home and many other homebuilders are being piggish.

The human cost of the housing and mortgage crisis on Main Street America is staggering. Across the nation over 350,000 construction workers lost their jobs since the start of 2006 106,300 in California alone.

As many as 3 million families are facing foreclosure in America. In California, foreclosures increased 682 percent between 2005 and 2007.

Hundreds of billions of dollars of shareholder value a foundation of all American workers’ retirement plans has been destroyed. Home values the primary investment for most Americans are in severe decline.

And many experts believe the worst has yet to come.

At a time when our country is on the brink of recession and homeowners are struggling, the same companies that helped create the mess want taxpayers to bail them out. Corporate homebuilders, whose subprime lending and overbuilding caused this mess, went hat in hand to Congress seeking a multibillion-dollar giveaway.

The Foreclosure Prevention Act of 2008, recently passed by the U.S. Senate and currently pending in the U.S. House of Representatives, has some important provisions to ease real human pain and restore confidence in the economy. But, one provision gives great cause for concern.


Unbalanced assistance

Under the act’s “carry-back” provision, corporate homebuilders and Wall Street investors would get at least $25 billion in tax breaks through 2010 compared with the $9 billion in the act to actually help homeowners. The carry-back would allow homebuilders to apply losses from 2008 and 2009 as far back as four years against taxes paid on profits a two-year extension of the current carry-back allowance even though much of the builders’ profit came from their own subprime lending and speculative overheating of the market.

If the net operating loss carry-back plan becomes law, the same corporations that helped create the mess stand to profit substantially. For example, KB Home would receive as much as $788 million. Ryland Homes, based in Calabasas, would get as much as $488 million. Standard Pacific, based in Irvine, would get as much as $481 million.

How can these companies ask for bailouts when so many Californians, in their own community, are struggling and when they helped cause that pain?

This kind of tax break for builders would make a bad situation worse. It incentivizes the dumping of excess housing inventory, regardless of price, because builders will be able recoup their losses through a tax refund. The effect will be to drive down home values even further in areas that have already been hit the hardest. This is good for the builders but homeowners will continue to suffer.

Most large homebuilders have their own mortgage operations, many of which were heavily involved in pushing subprime and other risky mortgage products to buyers who did not understand what they were agreeing to and could have qualified for safer fixed-rate mortgages in the first place. For example, KB Home increased its subprime lending in California 277 percent between 2005 and 2006. In 2006, nearly 19 percent of the loans that KB Home originated in California were subprime. Other companies had similar and even greater increases in subprime lending in California.

Rewarding irresponsible behavior with a taxpayer-funded giveaway will not solve the problems that led to the mortgage and housing crisis.

Those who created this mess should not be coming to Congress looking for a bailout and Congress members should not crumble at their demands. Taxpayers and the millions of Americans impacted by the crisis deserve better.

The net operating loss carry-back provision must be removed from the Foreclosure Prevention Act and replaced with legislation that tightens homebuilder regulation, and homebuilders themselves must agree to greater self-regulation.

Without that, working families impacted by the housing crisis and future homebuyers are but an excuse for a corporate bailout and no one can be confident in the housing market and the security of their mortgage.

Homebuilders must clean up their own mess instead of looking for a bailout and Congress must stand up for the people they represent instead of kneeling to special interests.


Terence M. O’Sullivan is general president of the Laborers’ International Union of North America, which represents about a half-million workers predominantly in the construction industry.

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