Conservative Budgeting Addressing The Foreclosure Problem

May 7th, 2008

Frederick County is resorting to conservative budgeting to address the foreclosure problem. John L. Thompson Jr., the commissioner is optimistic that the county will come out the winner by doing so.

But not all counties are equally lucky. The National Association of Counties recently reported that in Montgomery County the deficit in the budget would be $297 million because of the foreclosure crisis.

Thompson commented that the policy of Washington to bail out those who had perpetuated the travesty is going to further mire the situation. “The Federal Reserve is, in effect, swapping the bad loans for treasury securities.” He compared it to the thoughtless act of printing money in a futile hunt for solutions. As a consequence those house owners who had lived judiciously and repaid loans timely are now being punished for their frugality and honesty. Their savings are being debased. Those who bought houses beyond their means will be now rewarded with bailouts. He was highly critical in his comments saying that there is no doubt that the country was shifting from a free enterprise economy to a political economy wherein the economic efforts of good years are grabbed and privatized while in the bad years there is socialism leading to bail outs.

Frederick County is seeing notices of foreclosures rise from 50 to 100 per week. Notices are sent to the treasury office giving details of sale of foreclosed units – how and when which property will be sold. Each week has seen 25 more foreclosures being posted. Previously the increase was 25 per month. Fall in sales has led to fall in tax collection. Previously one developer brought in about 25 to 30 deeds per week. Today that number has fallen to 2 or at the most 6. When a bank repossesses the unit a recordation tax has to be paid to the county. It is the same when the property is sold or transferred to another party. But when a government body like Fannie Mae or Freddie Mac enters in the deal then exceptions are made. The county is paid the taxes due by the new owner. Thus in the long run the county does not get deprived of tax dues.

Of late banks have become very strict in their lending practices not merely because of the bad experience of the sub-prime drama but because the lending bodies want to hold on to their funds considering the volatile economic situation.