Lee County, Florida Tries More of What Caused Crisis

Lee County, Florida Tries More of What Caused Crisis
May 6, 2011

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

During much of the 2000s, Lee County, Florida experienced some of the nation’s steepest climbs in housing prices. Since then housing prices there have dropped off the cliff.

Now the county housing authority apparently wants to send them up and off another cliff, say real estate experts who are flabbergasted at a program that allows buyers to purchase a newly built house—in an area with a glut of empty and foreclosed houses for sale—for virtually no money down. Lee County includes the communities of Cape Coral, Fort Myers, and Sanibel Island on Florida’s southwest coast.

“What they’re doing is like trying to cure cancer with another dose of cancer,” said Jack McCabe, a real estate consultant and founder and chief executive officer of McCabe Research and Consulting in Deerfield Beach, Florida.

“They’ve got funds within the county and the state to use as additional down-payment funding. That, with a regular mortgage, gives buyers over 100 percent financing,” McCabe said. “One reason people walk away from their mortgages is they have little or no stake in the home. This program doesn’t make sense. It would help the developer and the builders, but it doesn’t help anybody else.”

Housing Authority Mum
The Housing Finance Authority of Lee County did not return calls for comment. The county association of realtors also declined comment, as did two local real estate sales offices.

A story on The Daily electronic news site said Adams Homes is the apparent beneficiary of the county housing authority’s down payment subsidy program for newly built houses. Bryan Adams, regional manager of Adam Homes, also did not respond to a request for comment. Adams Homes builds houses in Lee County and in areas in several other southeast states.

The Lee County program has $20 million worth of zero-interest, second mortgages to hand out. Those second mortgages may consist of up to 5 percent of the primary mortgage value and are used to cover the down payment and closing costs, according to The Daily.

'Rode Like a Rocket’
“Lee County rode the housing wave like a rocket,” McCabe said. “Fort Myers one year had the highest price appreciation rate in the country—47 percent in one year. There was no justification for it. The areas that went the highest have crashed the hardest. You’d think these people, especially, would have learned the lesson, and here they are trying to do it all over again.”

Ronald Utt agrees. He is a senior research fellow in housing and transportation for the Heritage Foundation in Washington, DC.

‘Going Opposite Direction’
“A lot of the problems that led to the housing bust were related to ‘naked-seconds,’ where a second mortgage was used as a down payment, and often the first mortgager didn’t even know there was a second mortgage,” Utt said. “Even Fannie Mae and Freddie Mac are moving to require old-fashioned down payments. This is going the opposite direction. It’s just going to put houses back into foreclosure.”

He said aiding the purchase of newly built houses likely would keep existing homes on the market even longer, thus holding their prices down.

“If there is no equity, all you have, essentially, is an expensive rental with no lease. It’s even more generous in that in a rental they can evict you fairly quickly,” Utt said. “With foreclosure, people can stay there a couple of years. It seems crazy.”

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing editor of Finance, Insurance & Real Estate Policy News.

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)