With the continued mass layoffs and job reductions, our biggest issue is consumer confidence. Retailers (see auto makers and shopping centers) are feeling the same level of anxiety the builders are feeling. If the consumer does not feel confident enough to buy a car, they certainly do not have enough confidence to buy a house.

A stimulus bill that puts money (tax reductions and credits) into a consumers hand and builds jobs is the first step. When consumers find a level of confidence that their pay check is secured, then a stimulus program for housing will work.

Then a housing stimulus bill will need to deal with the foreclosure problem and the confidence to buy. Lower rates and tax credits will help the buyers. Lower rates, longer terms, shared equity improvements and debt relief will help the foreclosure problem.

One step at a time is needed. Let’s pray the first stimulus bill (signed today by President Obama) will bring about job creation and consumer confidence.

Steve

A few months ago, when the stock market tanked, I thought a similar plan may work but after whipping out an excel sheet and playing with some numbers, I quickly decided that it’s not feasible. The biggest thing a plan like this would do (outside of costing a couple trillion at best) is eliminate the refi. market for decades and destroy every financial institution that makes money off mortgages. The upfront costs would nearly bankrupt the government and the implementation and completion of the plan would be a nightmare – the end result would be a government run banking system that wouldn’t make enough money to operate (just my opinion). Then there’s hyper-inflation…

Would this be limited to homeowners or could buyer’s get a free loan at 3% too and if so, for how long?

You don’t think consumer’s should lose their down payment? I hate losing money just like the next guy, but I decided to take a risk and would be happy enough getting my principal drastically lowered and a killer 3% interest rate

Curious to hear what others think about the plan, I just see it doing more harm than good, if it could even be done.

Much of this cycle started with the sub-prime mortgage debacle, coupled with the home buying / speculation, that resulted in a vast difference, and devastating impact, between property “Book Value” of the banks and “Market Value” of the consumer.

So here’s a plan that would work… use the proposed Federal funds to do two things:
1) Pay down the difference between Book vs. Market Values of homes, across the board
2) Buy down mortgage rates to 3% across the board (15, 20, 30 & 40 year terms)

Here’s how it would work…
1) Pay for all closing costs, including property re-appraisals
2) Cover the difference between the Book Value so as to equal Market Value
3) Allow initial “down payment” on the original mortgage to remain in place
4) Initiate a new mortgage, at 3% Interest, based on the new Market Value less the original “down payment” amount
5) Where applicable, cover the difference of down payment, or simply waive, the need for Mortgage Insurance
6) Where applicable, include home equity loans so as to form a single mortgage “bundle”

Here is an example:
A homeowner bought a home for $300K, put down 10% ($30K) and had an ARM loan, which is now at 7%
This results in a $270K mortgage @ 7% plus PMI plus property taxes result in a monthly payment of ~$2,500 ($2,000 Mortgage + $250 PMI + $250 Property Tax)
The new market value, based on a current appraisal, is now $210K (30% market drop is not unusual)
The NEW program would be $180K mortgage @ 3% ($210K – $30K initial down payment) results in a monthly payment of ~$1,200 ($850 Mortgage + $100 PMI + $250 Property Tax)
Program Benefits:
Bank “Book” vs. “Market” values are equal
Homeowner disposable income improved by $1,300 / month!
Housing market is stabilized AND retains equity for homeowner
Creation of jobs (appraisal, mortgage brokers & home improvement activities)
Easing of credit
Increased spending in the marketplace, further increasing job market
Much higher Return-On-Investment for us tax payers & the country

There is not a person that I know, from all income levels, who would not benefit from this type of program and who would not be interested in participating… run the numbers… it works!

Please feel free to share with your colleagues… I will as well.

I agree with your comments. We need to do something to get the foreclosure fiasco under control. That is where Dr. Rosen’s proposal makes sense to me. We still need the stimulus. Lower rates for mortgages and tax credits will certainly help. But, we need to stem the flow of foreclosed homes, or the market will never get an opportunity to go back to work.

Steve

The reason builders are not focused on single story homes in North County Coastal regions today is simple. We are all trying to stay alive.

The inventory of available new homes and the number of new home communities continues to drop in San Diego County. This is bad news for the buying public and bad news for builders.

The good news is that some of us are planning for the future, when times will be better. Brookfield is planning a new community in Carlsbad that will include single level homes. The community is called Foothills, and it is located along the north side of Cannon, just east of El Camino Real.

We hope to be out there this summer with more information about our new home products. We will have three single level plans and three other floor plans that will live on the first floor and offer secondary bedrooms or bonus rooms upstairs.

Please watch our web site for more information.

Thanks for the question,
Steve

The Fix Housing First Proposal will help get things going in the right direction and does offer strong support to home buyers. As you mentioned, a similar plan worked well in 75 and beyond; actually had years of lasting results. I looked into it and one major difference from today and the 70s is that during that time our nation enjoyed really low foreclosure rates and the stock market (in 75) showed gains. The unemployment rate was a tad higher though and interest rates were too, so it’s a toss up…

I think talking about it and taking action towards something is the right thing to do. I’m for the plan 100% (needed to be passed years ago) just wish it included loan modification terms, but that was already supposed to be addressed with Hope for Homeowners (summer) and TARP.

Why are builders not building homes for Baby Boomers who want to downsize into a nice, high quality, single story home? There is almost nothing new near the north county (SD) coast. I talk with many folks my age (60’s) who would like to have a single story, 3 bedroom, approx 2400 sq ft home on a decent size lot. There is little to be found like this. Almost nothing new or near new.

Jim