So many plans!

Tax credits? Reduced cost mortgages? Halt the foreclosures? There are lots of proposals floating around the halls of government today on how to fix the housing problem. I guess the best news is that people are talking about fixing the housing problem. Economists have been quoted over and over again regarding the need to fix the housing problem. Are we finally ready to do something about it?

The National Association of Home Builders put forward a proposal in December. Their plan is called the “Fix Housing First Stimulus Proposal”. The salient points of this plan include: 1) A Homebuyer Tax Credit, and 2) A Mortgage Interest Rate Incentive. They anticipate the impacts from this plan would increase home sales by 1.1 million in 2009. So, how does the plan work?

The Homebuyer Tax Credit would provide the purchaser of a principal residence, an income tax credit between $10,000 and $22,000 (based on local home prices), which could be used as part or all of the down payment for the purchase. There are some restrictions based on the buyers income and the purchase would need to be made during 2009. But, the credit would be real, and would not have to be repaid (unlike the tax credit plan approved in early 2008).

The Mortgage Interest Rate Incentive would create a program to provide 30-year fixed mortgages available to purchases of primary residences at an annual rate of 2.99% or 3.99%, based on the timing of the purchase. The 2.99% rate would be available for purchase through June 30, 2009. The 3.99% rate would apply to purchases from July 1 to December 31, 2009. For a purchaser of a principal residence at the 2.99% rate, the projected savings would amount to approximately $275/month or $3,300 for the first year.

The NAHB analysis finds that a stimulus plan offering these benefits would create approximately 539,000 jobs, $26 billion in wages and salaries, $21 billion in business income, $14 billion in federal tax revenues and $4 billion in state and local tax revenues. A similar program was successfully used in the 1974-1975 US economic recession and helped turn the housing market around.

Dr. Kenneth T. Rosen, Chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, has also taken a look at the issues and wrote The Housing and Mortgage Market Problem: A Set of Policy Options to be used in the public debate over housing stimulus plans. Dr. Rosen believes “the housing and mortgage market problems are at the core of the economic issues facing the Amenrican economy.” He also says that “solutions to these problems must be key parts of any economic stimulus package.”

Dr. Rosen points to the mounting foreclosure crisis, the continuing fall of home prices and the collapse of new housing starts and sales as the three major problems to be the focus of any economic stimulus plan. His analysis and explanations of these problems goes into great detail. His conclusions are similar to those of the NAHB’s “Fix Housing First Stimulus Proposal”, with one significant addition. Dr. Rosen proposes the declaration of a moratorium on foreclosures for 6 months and a bold program for refinancing troubled mortgages to keep them out of foreclosure.

Along with a lower interest rate, a reduced downpayment option and a tax credit plan, similar to the NAHB proposal, Dr. Rosen believes an economic stimulus pacakage with these benefits will enable “millions of Americans to avoid having to lose their homes and jump-start new home construction…” while preventing the “future meltdown of our financial markets.”

These are two of the proposals for a housing stimulus package being discussed in Congress. Where it goes from here may depend on you. As with most legislative efforts, congressional representatives are interested in their constituents’ perspective. Do your part. Call or write your representative and tell them to fix the housing problem now!