You can’t pin this one on Republicans alone. It’s true that Sen. Johnny Isakson (R-Ga.) came up with the idea to revitalize the proposal, which first surfaced earlier this year in negotiations over the stimulus package – -but Senate Banking Committee Chairman Christopher Dodd (D-Conn.) is a co-sponsor. Coincidentally, I’m sure, Dodd is in the midst of a tough re-election battle. I’d imagine offering a $15,000 credit for first-time homebuyers and eliminating any income ceilings so even wealthy people are eligible probably will lpay pretty well in Greenwich.

First, a little background. As TWI reported recently, Congress approved the $8,000 tax credit as a way to jumpstart the housing market, and HUD came up with a plan to allow homebuyers to access the credit immediately for downpayment money. This seemed slightly problematic to many, given the long history of fraud and abuse associated with downpayment assistance schemes for government-backed loans. Also, some wondered why the government was helping people who couldn’t afford downpayments to buy houses, given that having no skin in the game leads to defaults, which was supposed to be one of the lessons learned from the mortgage crisis.

To its credit, HUD came out with revised guidelines for the program, requiring borrowers to put down some of their own money for the downpayment, along with accessing the credit. And it issued stern warnings to third-party firms that might try to offer bridge loans for the credits at high interest rates.

That should have ended it. But then lawmakers came up with the new idea to increase the size of the credit and open it to everyone. Here’s how Clusterstock summarizes it:

The government continues its desperate effort to make the cost of dwelling more expensive. There’s already an $8,000 homebuyer tax credit, but it’s obviously not done enough, so Senators Johnny Isaacson and Christopher Dodd are proposing to up it to $15,000.

And, perhaps more importantly, they’re eliminating the income requirements. Under the previous tax credit, a couple had to have a combined income of less than $150,000. Now any upper-middle class homebuyer is eligible, and hopefully this will get the McMansion sales going again.

Yes, that’s just what America needs – more McMansions.

It’s true that interest rates are jumping and the housing market isn’t exactly soaring. And the Obama administration’s homeowner rescue plan isn’t quite taking off, either. Those are serious problems that need to be addressed. Is handing out a $15,000 tax credit the best way to accomplish that?

If this tax credit expansion passes, look for someone to suggest a way to let borrowers turn it into downpayment money. Then they can buy bigger houses than they probably can afford.

We might not have learned much from the current foreclosure crisis, but at least the builders of all those McMansions will be happy.