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Bush Fiddles While the Cuntry Burns
We all know about the burning of Rome, while Nero fiddled. The housing and mortgage meltdown feels like the burning of Rome, while President Bush does not ‘get’ the urgency of the situation. Normally, I don’t write about politics, but today, I am making an exception. The Senate has proposed a modest housing reprieve with tax breaks for homebuilders, a $7,000 tax credit for buyers who purchase a foreclosed property, $10 billion in tax-exempt bonds for housing agencies to assist strapped homeowners in refinancing their homes and $100 million to counsel borrowers. The White House is responding that this bill would do more harm than good. President Bush has proposed an alternative which would require lenders and investors to write down their loans and would also require the homeowner to pay 3% down payment. Most of the strapped homeowners cannot drag 3% to the table. If these homeowners could have found 3%, they would have refinanced their homes a long time ago.
This crisis has dragged the economy down; caused lenders to stringently tighten their guidelines; caused Americans to have little confidence in the President; caused pockets of foreclosed homes across the country and the White House says – the bill would do more harm than good?? Since the other White House proposals have done little or nothing to assist Joe Homeowner, and this new proposal is too limited to assist more than 100,000 homeowners, this situation can only get worse. I spoke to a homeowner the other day and she indicated that the $600 rebate from the stimulus would not pay ¼ of her mortgage.
Most of us have done all the belt-tightening we can do. Isn’t it time for Congress to do something to assist the average homeowner? And to get the President’s attention? All of us know horror stories of honest, hard-working people losing their homes because of the declining market conditions and the inability to refinance. I’m not a big advocate of Government programs, but it seems that something needs to be done at the Federal level to prevent further erosion of our housing and mortgage markets. How much longer can the White House ignore this situation? Or, does Bush enjoy fiddling while Rome burns?
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What Are The Hidden Costs of Foreclosures?
It’s been widely quoted (on NBC News and other sources) that each foreclosure costs every neighboring homeowner 1% in home value and 2% increase in crime. There are even more costs. In Arizona Republic, Edythe Jensen’s article focused on Homeowner’s Associations and their budgetary woes. HOAs and their management companies are unable to perform many of their customary services, i.e., inspection and weed removal, because of the lack of HOA fees. This is a trickle down effect of short sales and foreclosures and delinquent HOA fees.
A 2% increase in crime is subsequently borne by cities and counties who also have shrinking resources, because of a non-performing tax base. Each foreclosure and short sale depletes the tax base, and when the house is sold at a reduced price, the tax base is lowered.
This is particularly gloomy and in view of Ben Bernanke’s ‘shrinking’ first half prediction, it’s time for Congress to get into this act.
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Thoughts on Real Estate
In watching the Democratic candidates this weekend, I paid particular attention to their views on the housing market and what is the best plan to get the country out of the housing ‘mess’ that we’re in. Sen. Clinton is proposing a 5 year freeze on interest rates and a 3 month moratorium on foreclosures to give the lenders an opportunity to aid homeowners. Sen. Obama is proposing a fund for homeowners to assist them in refinancing their homes.
While I think both of these proposals is well intentioned, I think they miss the mark. It’s my view that we should be looking at this market as an awesome opportunity for buyers and we should make it more attractive for buyers to get into the market. Now, I know, people say: “that’s what we did 3-4 years ago, and look where we are”. What I propose is to allow lenders to lend money. What a concept!! Most lenders are so afraid to lend that they’ve stopped doing their job!! Let’s be cautious about buyer’s credit and their ability to repay the loan, but let’s go back to lending money. Also, since we currently have 15 months inventory on the ground, why not give a homebuyer (not an investor) a tax credit for purchasing a resale home. I like the rolling 3 year tax credit idea, but any form of this would be a big boost to the housing market.
Since the housing market affects 30% of the economy, and in Arizona, I think that figure is higher, we need to figure out a way to stimulate this vital part of our economy. Of course, I’m prejudiced, since it’s the industry in which I work, but think about it. With minimal interference from the government, we could, I believe, get more buyers into this market and ‘eat’ up our inventory at a rapid rate. I’m interested in anyone’s comments or suggestions to these proposals
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Who Do You Bail Out?
This was recently a column heading in the New York Times. Do you bail out Wall Street and the hedge funds? Do you bail out lenders? Do you bail out homeowners?
There is a new proposal being floated by lenders to have the American taxpayers bail out the lenders. After decades of keeping Congress out of the lending game, these lenders have floated a proposal to allow the Federal Government (the taxpayers) to buy the lenders distressed loans!! The first step in this process is for the lenders to write down their loan portfolios to a ‘reasonable’ level. This would be extremely difficult, since many loans are in declining markets, which are continuing to slide downward. Once the lenders wrote down their portfolio, the Government would agree to purchase these portfolios at the discounted amount, with the hope that home values would increase, rather than decrease. The outcome, however, could be that the American taxpayer would be saddled with bailing out these lenders, ala the Charley Keating mess in Phoenix several years ago.
Sen. Johnny Isaakson of Georgia, I believe, has floated a much better proposal. He is proposing to give buyers tax credits of $5,000 per year for 3 years, if they purchase a foreclosed home. This, in my opinion, is the stimulus which is needed to bail out our sagging housing market. In Phoenix, we have 15 months of inventory on the ground, and in March, the 3,000 Notice of Trustee’s Sales posted in December, will be hitting out inventory. It is imperative that this inventory be sold, quickly rather than slowly. The sooner we can ‘chew up’ this inventory and move on, the quicker we will recover from this housing ‘mess’.
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In the news last night and in the newspapers this morning, the latest attempt to forestall foreclosures was announced by the Sec. of the Treasury, Henry Paulson. The proposal is to freeze foreclosures for 30 days and to reach out to those borrowers (homeowners) who are 90 days delinquent in their payments and who have not contacted their lender regarding a work-out. The Arizona Republic detailed some of the guidelines: no Trustee's Sale within the next 30 days; not in bankruptcy; not vacated the property (still living in the house); and not used equity to purchase a vacation home or investment property.
Time will tell whether this latest 'Lifeline' will be sufficient to halt the foreclosures and allow more homeowners to stay in their homes. The op-ed piece this morning in the New York Times was extremely sceptical about this attempt and called for Congress to take a more active role in halting our foreclosure/mortgage default mess.
Any bail-out will take time, and hopefully, those borrowers who meet these guidelines will contact their lender. The Big Five (Bank of America, Chase, Countrywide, Washington Mutual and Wells Fargo) are participating in this latest attempt. Let's wait and see if this works.
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