Obama's Housing Plan - What Will It Really Accomplish? 22 comments
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As details of the administration's housing rescue plan sneak out, the $50 billion dollars to be used to restructure mortgages seems a drop in the bucket compared to the $6.1 Trillion in home values lost since the peak of 2006. If spread out just amongst the 2.4 homes in foreclosure, this is a little over $20,000/home, but rumour has it this will apply to homes not yet in default.
Let's say this program ends up working out to around $10,000/home. For a typical home that was valued at $250,000, where the homeowner owed $200,000, and is now underwater and valued at $180,000, this doesn't make much difference, and on expensive homes, it's not even worth thinking about. It seems clear that to make much difference, this program will have to be concentrated on the lowest end of the market, the $100,000 and under homes that can be found en masse in cities.
It appears this program will not do much to lift home values, or even stabilize them at the medium and higher segments. It will, however, reduce foreclosures in lower income areas. While this will reduce the inventory of $100,000 selling for $50,000, it doesn't appear to do much to stem the tide of $500,000 houses selling for $250,000. And this leaves the banks and derivatives holders on the hook for huge losses. And lower income areas have a more serious problem - namely, jobs. What help will all this restructuring do if the residents don't have income from which to make the new payments?
What is needed to turn this economic slide around is not a $50 billion fiscal tweak at the low end of the housing market, but a turnaround in global economic confidence and long term economic and jobs recovery. The Fed needs to address the tens of trillions of dollars of lost value, the hundreds of dollars of default-primed insurance on that value, and the massive loss in confidence in any kind of venture that requires an assumption of growth, with significant monetary stimulus.
The Fed has announced a plan to expand it's purchases of mortgages that approaches a trillion dollars. This is a good start, and should be expanded. Meanwhile, these kind of fiscal programs will provide assistance to some of the population, but as has been found in the past, assistance to some of the population does not engender economic growth. A rising tide raises all boats, propping a few boats up in a falling tide only leaves them high and dry.
Disclosure: no positions
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Socialist experimentation. Media brainwashing 24/7, and drain the value of money 24/7.
If last year's political interventions are a guide, this too will fail, and after a few days, the market will finalize that down move.
I, Remove 2 million homes from the MLS (for Sale) that financial institutions currently have
for Sale. Any Institution that received TARP funds will be required to first offer the home
to the RTC for purchase. RTC will not purchase any home above $417,000. No Jumbos.
2, Government Resolution Trust will purchase these homes from these institutions for 20%
less than original first Mortgage amount. No negotiating.
3, 600 billion dollars to buy these homes (app $300,000 each average) will come from the sale
of long term 30 year bonds. (Currently app 3-5%) issued by Government.
4. RTC will send these homes to the local HUD offices for disposition thru voucher program
(rentals). $5000 will accompany each home for repairs & upkeep. eventually as the MLS
system reaches certain inventory levels (i.e. 30-60 days) HUD will be allowed to place these
homes on the sale market. If the inventory increases HUD will remove homes accordingly.
This will be a local HUD market decision, differing from region to region. Rental Income will
help cover expenses such as maintenance, insurance and property taxes.
Pro's:
Supply/demand economics will create a bottom in the housing market once 2 million homes
for sale are removed. Prices will start to increase.
Local governments will see a bottom in declining values and revenue will increase as values
slowly stabilize and slowly increase.
Individual homeowners as well as other sellers will find a housing market ready and able
to absorb the inventory.
Banks will now have a fresh source of funds to lend on homes that are not declining in value.
Banks will be able to clean balance sheets of hard to liquidate assets.
Lending/leverage/credi... markets will slowly begin to return to normal. Applications will
increase, appraisals, home inspections, title work, all types of stimulating activity for business.
As home prices stabilize and increase the local HUD agency selling homes over a 3-7 year time
frame will see prices rise for properties purchased by the RTC. HUD will only be required to
return to RTC the original amount of the purchase price plus the 20%. Or the original amount of the
selling banks first mortgage.
Once the RTC is closed and all homes sold, all losses (if any) will be covered proportionately
by the selling institutions. All financial Institutions selling homes to the RTC will share the loss
at the RTC as a percentage of total homes purchased and homes sold to the RTC. That percentage
will be the Banks percentage for covered losses. These losses will be paid by the banks over a 30 year period liquidating the original bonds sold to finance the purchase.
Other agenda items:
Mark to Market accounting will only apply to non performing assets.
Spend 50 billion each year for the next 3 years rebuilding infrastructure. Bridges, Roads, tunnels,
water plants, dams, levies anything to create jobs.
Stimulus checks for $300 only help pay a credit card bill once.
Any comments?
The cure for deflation is deflation. Get the pain over with, let the crooked big banks go down, finito.
The world is not going away and it's needs. We should protect the dollar at all costs, not debase it totally. I fear the damage is already done and all this pork bill is going to do is disallocate capital while printing money at a frenzied rate.
Socialism has never worked anywhere and it is not going to work now. Free lunch is not the answer.
The Bla-Bla-Obama administration is a Freak Show.
BlaBlaObama.com
expedite the foreclosures and let the people walk with a touch of dignity
on those who can't pay.
These foreclosures should be liquidated at auction and taken off the books,
Stop bleeding these already broken homeowner's of their last dollar in
retirement and other accounts. If someone has a job, re-write the mortgage
and keep the owner productive to society.
Let the government help back the banks on the write offs. The current
solution will eliminate a generation of homeowner's and consumers.
At least this will streamline and get the foreclosure mess moved along.
"It's hyperinflation and it all starts with Barack Obama signing away the country economic with his stimulus bill"
I didn't mean for this to be a poltical piece, or I would have talked more about how this housing plan is less an economic program than a social program targeted to Mr. Obama's base. But I've seen analysis showing that, to create hyperinflation in our credit (as opposed to truly fiat money) economy, the Fed would have to print $20 Trillion dollars. Sadly, this little stimulus bill isn't going to do anything. The trillions the Fed is thinking about deploying- won't create hyperinflation, but will hopefully slow price collapse.. But I'm afraid this isn't enough to create any kind of recovery.
"Obama has been president for less than a month and is attempting to cope with a mountain of problems left behind by Bush"
Actually Obama's worldview- that consumption was unsustainable, raw materials were running out, and rich people were getting too rich- was behind the 18 Fed rate increases into 2006. Creating a 2-3X hole in spending to cover debt coverage in families and business was like stomping on the brakes of a car going 80 mph. Now, we're spinning out. That wasn't Bush's plan, and his administration prevented a real disaster from happening last fall.
"Housing solution!
I, Remove 2 million homes from the MLS (for Sale) that financial institutions currently have
for Sale."
I like you plan better than what I've heard so far, though I don't really like the idea of the government telling banks what they can or can't sell, to be honest.
"The cure for deflation is deflation. Get the pain over with, let the crooked big banks go down, finito."
Deflation will create more deflation until we're all sitting at home wondering what we can grow to eat in the back yard. And there are too many deer around my house to yield much.
"Socialism has never worked anywhere and it is not going to work now. Free lunch is not the answer."
If society can agree to draw lines on the roads, they can agree to create a safety net, and if you don't like stepping over dead bodies or running from thugs, you should agree this is a wise thing. On the other hand, the moral hazard toll of a welfare society on the human spirit is unacceptable, as that nutjob with 14 kids shows, so I'm not in favor of free lunches. But we better create some jobs- and why not, with all the work that needs to be done?
On Feb 13 08:03 AM Gem Hudson wrote:
> It's hyperinflation and it all starts with Barack Obama signing away
> the country economic with his stimulus bill. Happy Firday the 13.
I'm an architect. My experience is that home ownership is really the essence of bonding people to their communities. Building and remodeling homes not only provides jobs, it provides a lot of materials and manufactured goods a market.
Inflation is a good thing for homeowners because it decreases the proportion of their income going to mortgage payments and may allow them to pay off their mortgages early and put more of their income back into the economy making more jobs for others.
As more people are employed incomes should go up which is good for everyone. There will be less of a separation between rich and poor nelping unite the country toward more common purposes.
Subsidies to remodel older homes to be more efficient, green and LEED compliant will help reduce the amount of money that goes overseas to pay for foreign oil
As we use the money to build necessary infrastructure, provide healthcare and education small businesses will benefit, be able to move their goods easier and more rapidly, have less of a healthcare burden for their eployees, have more money to spend on keeping up with the latest technology and accees to more better educated and well trained employees.
The biggest problem is the eight year backlog we have in which all these important necessities have been totally ignored. It may take a couple of years to get people feeling secure in their jobs and incomes again but once they do they will definitely want to spend money on improving their quality of life, expanding their housing space and all of this grows the economy.
You're the media -sheeple that is part of the problem.
And I didn't say I'm for spending one trillion. I'm for printing one trillion, and more, but using it to lower interest rates and replace China debt purchases, not consume (spend) more.
Don't let Michael Savage overwhelm your neurons with so much rage that you lose your ability to interpret the meaning of words.
Govt hires unemployed non-white, non-construction workers (Reich's plan, not mine) such as waitresses, former Circuit City employees, etc to bulldoze the couple million empty homes. (Really-- how tough can it be ? Homes are pretty big and hard to miss with a bulldozer. I think ex-Circuit City employees can handle it. I am sure the waitresses will get it done.)
Voila!! Problem solved. Supply and demand take over, housing prices rise, CAT leads stock market to big bull rally. Waitresses get seated in the gallery and introduced as heroes at next State of the Union address.
"Except Ron Paul. I know you didn't vote for him but that was because you thought he was wrong about the economy. "
Actually I did vote for him, as a write in. Pointless? Maybe, except one should vote for the person best suited for the job in their opinion. No one else was even close.
In his article Mr/ McCoy refers to $500k houses selling for $250k. This is in my opinion, a mis-statement, they are $250k houses bubbled up to $500k. They were and are $250k houses.
The banks are now earning a spread between 5% -18%, given the almost zero rate of deposit cost and zero rate fed fund rate. This revenue spread will be sufficiently enough to charge off the worst scenario loss spanned for 8 years (remember, mortgage default and resulting foreclosures happening over time. It could not happen all at once.)
While it seems low of circa 100 billion to stem the housing market, one must remember that the marginal pricing power, that is the last price determined the going price. However, one must note that only 1.2% of total house in USA was foreclosured in 2008 (that means foreclosure rate in 2008 was only 1.2%, that also means that total loss for the banks as a whole was 0.6% of total mortgage portfolio, assuming 50% recovery rate) The banks as a whole can easily charge off 0.6% of bad loans.
What Obama's plan of circa 100 billion will do is to put fear into the market, that is: The housing floor price has reached and that vultures and shorts must aware that the risk/reward profile is now running against them and that potential buyers must enter the market now or be forced to buy housing at a higher price later.