War Vets Should Get Tax Break on Foreclosures, Fed’s Peach Says

The U.S. government should provide a tax credit to military veterans to buy foreclosed properties owned by government mortgage financiers, according to Richard Peach, a Federal Reserve Bank of New York economist.

This would help clear the supply of seized homes and result in “some firming” of real estate prices, Peach wrote in a Feb. 22 blog posted on the bank’s website. It would be “an expression of the nation’s gratitude for a significant sacrifice while at the same time speeding the onset of a more robust recovery of the economy,” Peach wrote. The program would apply to homes owned by Fannie Mae, Freddie Mac, The Federal Housing Administration and the Department of Veteran Affairs.

William Dudley, the bank’s president, has pushed the U.S. government to take steps to revive the housing market, after home prices declined 33 percent from the 2006 peak. He mentioned the tax credit for veterans as one possible solution and called it “Homes for Heroes,” in a speech last month. Owners of an estimated 8 million homes will lose their properties to foreclosure or through distressed sales in the next five years, according to Morgan Stanley.

Distressed properties expected to come onto the market in 2012 will further stall the U.S. recovery and put downward pressure on home values, according to Peach. Extending the tax credit to the 2.5 million veterans that have served in the U.S. armed forces since September 2001 would create more demand and help stabilize prices, he wrote.

An incentive for veterans would be similar to the homebuyer tax credit enacted in 2009, according to Peach, which boosted home sales to the highest since the start of the financial crisis.

To contact the reporter on this story: Christine Harvey in New York at Charvey32@bloomberg.net

To contact the editor responsible for this story: Rob Urban at robprag@bloomberg.net

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