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Wilbur Ross: Renew Homebuyer Tax Credit

Wednesday, 08 Sep 2010 10:34 AM

Wilbur Ross, the billionaire who invested in a residential mortgage servicer and bond guarantor, said the U.S. government should revive a homebuyers’ tax credit to prevent the economy from contracting.

Home sales in the U.S. plunged to the lowest level on record in July, three months after the government deadline for buyers to receive a credit of as much as $8,000. The program started as a way to lure buyers after four years of declining home prices that left more than a fifth of U.S. mortgage holders owing more than their properties were worth.

“Who wants to make hundreds of payments into a negative- equity rat hole?” Ross said at an insurance conference sponsored by KBW Inc. in New York.

Ross bought American Home Mortgage Investment Corp., the servicer of subprime mortgages, as the U.S. headed into recession, and is an investor in Assured Guaranty Ltd., a bond insurer. S.A. Ibrahim, chief executive officer of mortgage insurer Radian Group Inc., said at the same conference that the U.S. needs to do more to revive the housing market.

“The financial crisis we are experiencing today started with housing and mortgages,” Ibrahim said. “Until we fix housing and mortgages we will continue to not have a stable foundation on which to have the economy recover.”

Economic growth in the U.S. slowed to a 1.6 percent annual pace in the second quarter, the Commerce Department said last month. The gross domestic product contracted by at least 4 percent in each of the three quarters through March 31 2009.

Fannie Mae and Freddie Mac, the mortgage-finance companies bailed out by the U.S., should back loans only when borrowers have equity of at least 25 percent in their properties, Ross said. Presently, borrowers with mortgage insurance can put down less than five percent on some loans.

Fannie and Freddie may not be able to count on mortgage insurers to protect against defaults after the guarantors lost their investment-grade credit ratings, Ross said.

Radian’s Ibrahim said his Philadelphia-based company is rebounding after losses on guarantees made when housing prices were at their peak. The company raised more than $500 million in a stock sale in May.

“We have not only successfully changed our credit parameters to write high quality, high credit business, but also increased our market share significantly to write new business at attractive return on capital,” he said.

Ross said holders of mortgage-backed securities should get tax benefits in exchange for giving borrowers better terms.

“The mortgage problem is vast and complicated,” Ross said. “No single bullet can solve all of the problems.”

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Wilbur Ross, the billionaire who invested in a residential mortgage servicer and bond guarantor, said the U.S. government should revive a homebuyers tax credit to prevent the economy from contracting. Home sales in the U.S. plunged to the lowest level on record in July,...
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Wednesday, 08 Sep 2010 10:34 AM
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