Are Veterans the Ray of Light for Shadow Inventories?

by Houston Agent

A Senior VP at the New York Fed thinks that veterans may be the answer to the shadow inventory problem.

Ideas abound on how GSEs and private banks should deal with their backlog of distressed and foreclosed homes, a collection of properties known as the shadow inventory. From fire sales with investors to rental conversions, a new idea seems to spring up every week for the unfortunate properties.

The latest idea, though, courtesy of Richard Peach, a senior vice president at the Federal Reserve Bank of New York, takes a highly original stab at the problem – incentivize veterans returning from Afghanistan and Iraq to buy shadow inventory properties, particularly government-held foreclosures.

Peach said that between a tax credit ($16,000 was floated as a possible number) or downpayment assistance, both would stimulate veteran interest in the discounted properties.

“We had a tax credit for first-time home buyers, then we had a tax credit for anyone who could qualify to buy a house,” Peach said. “Why not have a perhaps even more generous credit for people who have served us and simultaneously do something that’s good for the economy overall?”

Incentivizing veterans, Peach said, would help absorb the nation’s inventory of foreclosed properties before they re-enter the market. Foreclosures are arguably the main reason for the continually depressed prices in the housing market, as cheap, vacant homes sit on the market for years and are factored in to appraisals of neighboring properties.

And as Newsday‘s Ellen Yan points out, 2010’s robo signing scandal withheld thousands of foreclosures from the market, and the massive amount of distressed listings prepping to flood the market would certainly drive down prices even further.

Peach said that he has no specific plans for the “raw” ideas behind his proposal, but he intends on elaborating upon his ideas soon on the Fed’s Liberty Street Economics blog.

“I think this is something that we can do that would make people feel good,” he said.

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