In the second series of “how paternalistic government ruins this nation,” I’d like to talk about HUD and the practice of dollar houses.
Dollar houses are houses that are sold to government entities (local or federal) for $1. The properties are usually from the stock of foreclosed properties that the borrowers of FHA loan have defaulted on. There are two dimensions of unethical behavior by the government.
First, the distortion of real price of the house. Why is this unethical you may ask, can’t a government agency which owned the house in the first place rightfully sell it to whomever it wants at whatever price it wants? Question would be valid if same practice is legal for other lending institutions. A bank cannot discriminate when they are selling an REO property. That FHA can open initial bid of some of the properties and reserving them to government agencies only is a dual standard. Furthermore, by selling the defaulting property to another government agency, a disgusting practice which I would refer to as incestuous, at $1 creates an unwanted burden to the tax payers. In the private lending institutes, a house that had its mortgage loan defaulted on is to be sold for the remaining amount of loan so that the depositors and the investors of the bank will exit out with some modicum of return on investment.
Here, the government, which is supposed to act as a fiduciary to the tax payer, is acting with brazen disregard for their responsibility. What about the remainder of the loan amount?
Second ethical problem arises when there is a collusion between the local government agencies that purchases them. There are many oversight measures that are overlooked (laughably true) that allows politically and religiously motivated non-profit organizations to take advantage of their close relations to the local governments to use the local government to purchase for them these dollar houses while they pay the city government some “commission” and use the ill-gotten gain to promote their (whatever it might be) cause. These non-profit organizations will then use these free houses as bargaining chips in gaining more adherents or turn around and sell them for profit. Non-profit organizations don’t have to pay taxes on them because all they have to do at the end of the year is to spend their profit fully (meaning they buy cars, schedule trips, print a million books) to balance their books to have zero profit.
Of course these types of behavior is not limited to non-profit organizations, there even are incidents where for-profit developers have colluded with the local governments to turn around and sell the houses for profit.
I see again and again the folly of the argument that “government provides essential services.” This is but one example of how that is an utter nonsense. The tax payer is certainly being shafted and taken for all his worth in this type of dollar houses scenario. This type of sale destroys home values. Lastly, this type of sales do not benefit the poor at all, in fact it benefits the just the opposite: rich for-profit developers and middle class bureaucrats who run non-profit organizations to promulgate their own political or religious views.
One word would describe this practice. Shameless.