Housing Poised to Recover But Still Needs US Help
That proposal has been warmly embraced in many quarters of the real estate business, since first floated three weeks ago.
“To really have a meaningful impact, rates have to go below 5 percent,” says Lawrence Yun, chief economist at NAR, who says home prices are at “equilibrium values" but "pessimism can push them down further.”
Yun estimates a drop from 6 percent to 4.50 percent will result in 750,000 additional home purchases, helping to solve the inventory problem. On a $200,000 house, bought with a 10-percent down payment, the difference in monthly payments is $912 vs. $1079.
That’s a powerful incentive and it has not gone unnoticed by consumers.
“People are still waiting for 4 1/2 percent,” says Cohn, who wants the Treasury to act now. “I can't tell you how many people have mentioned it.”
Implementation of such a Treasury plan as well as a possible Fed measure to buy long-term securities to push down short-term rates will have a powerful effect, say analysts.
“Mortgage applications have gone up, so we know were eating up some inventories,” says money manager Scott Rothbort, who’s also a professor at Seton Hall University's Stillman School of Business. “Now we have to create the demand.”
Even still, questions and concerns remain. For one, it’s unclear what the two mortgage-market based measures would cost, but some say the money could conceivably come out of the TARP program.
The mortgage bankers group prefers the Fed measure because it would affect rates in a less "overt fashion", says VP and chief lobbyist Francis Creighton.
Though the mechanics of the Treasury plan are not known, the MBA has a number of concerns, including its potential to negatively affect loans servicers or encourage people to buy a bigger house and borrow more than they originally intended, says Creighton.
Foreclosures-The Final Frontier
On the foreclosures front, Rep. Maxine Waters (D.-Calif.) introduced legislation this week based on a plan by FDIC Chairman Sheila Bair, who’s had some success in the area with the failed thrift IndyMac.
The Systematic Foreclosure Prevention and Mortgage Modification Act of 2008, to be paid for with TARP money, would commit $24.4 billion to modify half of the 4.4 million non-GSE loans expected to become problems in 2009. Based on a 33-percent re-default rate, 1.5 million homeowners would be spared foreclosure. Currently, here are some 55 million mortgages.
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Under the plan, the government would pay companies that service the mortgages $1,000 for each modification and share up to 50 percent of any loss if a modified loan re-defaults.
“I think she feels this is a very significant step,” says Michael Levin, Waters' press officer. “It would go a long way to stopping and preventing foreclosures.”
Washington's previous foreclosure effort—the Hope for Homeowners program signed no last summer—has largely been a failure, despite its $300 billion price tag.
Economists and industry players say stemming foreclosures is a key factor, especially if the government plans to spend billions subsidizing the cost of bringing new homeowners into the market. New buyers might be spared a significant drop in property prices and inventories would decrease as more owners stayed in their homes, which would feed back into prices.
Such optimism may be supported by conventional market behavior, but skeptics say Washington policymaking is less predictable.
Rep. Water's foreclosure legislation is unlikely to go to a vote before the new Congress convenes in January, while the Treasury and Fed measures aren't even on the official agenda yet.