Tuesday, December 30, 2008

More Communities Receive Assistance from HUD

Even as we ring in the new year, many communities are still struggling with the ways in which foreclosed properties are affecting their neighborhoods. Now more than ever, these communities are relying on funds from the Department of Housing and Urban Development's (HUD) Neighborhood Stabilization Program (NSP), which was approved under the Housing and Economic Recovery Act of 2008.

On Monday, HUD approved requests for federal assistance for both Florida and Colorado.

Three Florida communities that have been hit particularly hard by the foreclosure crisis - Hillsborough County, Cape Coral and Fort Myers - will receive $28 million dollars in total from the federal housing agency.

According to RealtyTrac, the Cape Coral-Fort Myers area had the highest number of foreclosure-related filings in November, with one in every 59 housing units filing.

Additionally, HUD has approved Colorado's request for $34 million in NSP funds. Among the areas hardest-hit by foreclosures, the cities of Denver, Colorado Springs, Aurora and metro Denver’s Adams County have separately applied for a total of $19 million in HUD foreclosure-relief funds.

Monday, December 29, 2008

HUD Decides to Cut FHA Secure Program

A recent article published on HousingWire.com reveals that the Department of Housing and Urban Development (HUD) has decided to cut the FHA Secure troubled borrower refinancing program as of December 31, 2008.  This decision results from the program's inability to address the widening scope of borrowers who are facing foreclosure and in need of modifying their home mortgages.  

HUD released news of the program's termination in Mortgagee Letter 2008-41 on Friday, December 19.  

Sunday, December 28, 2008

New HUD Leadership Provides Promise for Change

A recent article in the Washington Independent outlines potential leadership for the Department of Housing and Urban Development (HUD) in the upcoming Obama administration.  While Shaun Donovan has already been named Secretary-designate for HUD, other significant positions within the department have not yet been filled.   

Tuesday, December 23, 2008

Experts Refute Argument that CRA Was Primary Driver of Foreclosure Crisis

Federal Deposit Insurance Corporation Chairman Sheila Bair spoke last Wednesday, December 17 at the New America Foundation in Washington, DC. In addition to outlining the FDIC’s recommended approach to loan modifications, she addressed the Community Reinvestment Act (CRA) and its purported links to the foreclosure and credit crises. Some have argued that the 31-year-old CRA is one of the chief causes of the financial and housing debacles – for example, please see this recent opinion editorial published by The New York Times.

Chairman Bair made it clear that in her view these claims have no merit. “I think we can agree that a complex interplay of risky behaviors by lenders, borrowers and investors led to the current financial storm,” she said. “To be sure, there’s plenty of blame to go around. However, I want to give you my verdict on CRA – it is not guilty.” She further pointed out that only about one in four subprime loans were originated by the banks covered under the CRA during the heyday of these risky mortgage products from 2004 to 2006.

An editorial in The New York Times reflected this point of view, noting that it made little sense to blame a 31-year old act for comparatively recent problems and that the regulations promoted under the act “actually impose restraints on the riskiest kinds of subprime lending.”

Following Chairman Bair’s speech, Roberto Quercia and a team of researchers from the University of North Carolina’s Center for Community Capital presented the results of an ongoing study on the performance of the Community Advantage Program, a secondary market program for CRA loans to low- and moderate-income homebuyers operated by Self-Help in North Carolina. The study compared the performance of fixed-rate loans sold into the Community Advantage Program to the performance of subprime loans to buyers with similar demographic and financial characteristics. Most of the loans in the Community Advantage Program pool were originated by retail lending institutions motivated by CRA obligations.

The findings showed that the loans in the Community Advantage Program pool had significantly lower default rates than the subprime loans, and even than Federal Housing Administration loans and adjustable-rate mortgages in the prime market. These findings suggest that the current financial crisis is rooted in the widespread use of poorly-underwritten loans with risky features, rather than the act of lending to low- and moderate-income families.

Multiple other reports and statements have echoed the benefits of the CRA and provided evidence that it has not been a major factor in the foreclosure and credit crises. These include:

CRA Not Responsible for Subprime Lending Abuses by Comptroller of the Currency, Administrator of National Banks


CRA is Not to Blame for the Mortgage Meltdown by the Center for Responsible Lending


Defending the CRA by David M. Abromowitz and Cathy Minehan, Center for American Progress


It’s Still Not CRA by Ellen Seidman, New America Foundation


Statement from National Civil Rights, Consumer, Community Development and Housing Groups Regarding Attacks on the Community Reinvestment Act (CRA)


The Community Reinvestment Act: A Welcome Anomaly in the Foreclosure Crisis by Traiger & Hinckley LLP, 2008.


Addendum: (http://www.traigerlaw.com/publications/addendum_to_traiger_hinckley_llp_cra_foreclosure_study_1-14-08.pdf)

Video, audio and PowerPoint files for Chairman Bair’s speech and the Center for Community Capital’s presentation are available on New America Foundation’s Web site.

Monday, December 22, 2008

Guest Blogger: Douglas Moritz on the Reinvention of HUD

The plan to reshape HUD has to:

• Link national housing tools to state & local housing tools;
• Insure HUD has a passion for preservation; and
• Recognize that the risk management of the system for raising residential capital has to be heavily regulated. Thus, the oversight and regulation of the delivery system for residential capital has to be removed from HUD.

Until the 2008 mortgage meltdown, we never understood the role that housing has in the overall economy. As a result, we have avoided creating a national housing policy because it was both too hard and overridden by local market conditions and political interests. Demand is a local issue but supply has to be the national priority. We have learned that, as it is with utility power, it is too risky not to have government insuring uninterrupted ‘power’ to the housing market.

(a) Create a policy for housing the next generation.
Markets move faster than government, and policy is needed to stay ahead of supply issues. The national housing policy has to articulate a balanced approach, elevating rental housing as a more viable option. It should declare that shelter is an entitlement, that housing capital has to be regulated, and that tax policies need to support supply. The preamble of this policy should provide guidance for a residential capital system.

(b) Improve and update the national tool box for lowering the cost of housing for the nation, 80% of whom cannot afford full market cost of shelter.
Along with setting the standards and managing the risks of housing affordability and quality, designing the most powerful and relevant set of tools are HUD’s primary functions.

(c) Expand the primary reach of HUD.
Create a network of regional linkages between HUD and State and local housing agencies.

(d) Remove anything to do with capital formation and management of its risks from HUD to permit its focus on creation of relevant tools and risk management.

(e) Create the federal housing finance bank.
Bundle together the entities in the business of residential capital creation and all forms of insuring the instruments for raising capital. Move them into a bank and regulate like heck. The nation’s economic health is at stake, and it can contaminate the world.

Only then can we make decisions about the relevance of the government entities that are key to delivering capital to the residential industry, i.e. the Federal Housing Administration, Fannie, Freddie, and the Federal Home Loan Bank.

Douglas Moritz is a Principal at JMB Preservation Advisors, a consulting firm in Rockville, Maryland.

Thursday, December 18, 2008

HUD Celebrates the Holidays with New Hope

An article in today's Washington Post praises the Department of Housing and Urban Development (HUD) for having a close-knit vibe and positive attitude shared among department employees, which were both showcased at their holiday party held yesterday. Although HUD has received some criticism in recent days given the current collapse of the housing market and ongoing economic crisis, this article suggests that the government agency shows a lot of promise for the future.

Wednesday, December 17, 2008

HUD Leadership Voices Frustration with Hope For Homeowners Program

Today's edition of the Washington Post features an article about the "Hope for Homeowners" loan modification program created last summer under H.R. 3221, the "Housing and Economic Recovery Act." This program was written to assist up to 400,000 homeowners facing default by placing eligible borrowers into new, sustainable loans that are backed by the Federal Housing Administration (FHA).

H4H became effective October 1 and has only collected 312 applications to date. Many policymakers argue that the program's strict eligibility guidelines and a lack of participation among mortgage lenders prevent more struggling homeowners from receiving aid.

HUD leadership, including current Secretary Steven Preston and FHA Commissioner Brian Montgomery have shouldered a large extent of the blame attached to H4H's inability to reach a wider scope of homeowners facing foreclosure. However, both Preston and Montgomery have recently defended themselves publicly, stating that frustration with the program's lack of success has been misdirected.

Obama Reveals HUD Cabinet Pick in Weekly Address

Check out this video of last weekend's Democratic Radio Address, which features President-elect Obama's announcement of Shaun Donovan as HUD Secretary-designate.

Monday, December 15, 2008

NHC Applauds President-Elect Obama's Selection of Shaun Donovan for HUD Secretary

Today NHC released a statement applauding President-Elect Obama's selection of Shaun Donovan to head the U.S. Department of Housing and Urban Development. Given the current economic crisis and collapse of the housing financial market, Donovan holds an extremely important position in the incoming Administration.

To read more about this announcement and Secretary-Designate Donovan, check out this article in the Los Angeles Times, which provides an interesting biography on Donovan and discusses his experience working with multifamily housing.

USA Today also published an article about Donovan that includes a quote from NHC President and CEO Conrad Egan.

Sunday, December 14, 2008

President-Elect Obama Chooses Shaun Donovan as HUD Secretary

This weekend, President-Elect Barack Obama announced that he has chosen Shaun Donovan to lead the U.S. Department of Housing and Urban Development. Donovan, an NHC Trustee, is currently commissioner of the New York City Department of Housing Preservation and Development.

Please see this detailed story from The Associated Press about Secretary-designate Donovan and the announcement, which includes a quote from NHC President and CEO Conrad Egan.

It is important to note that the current topic for expert posts on "Open House" is "Strategies for Strengthening the Effectiveness of the U.S. Department of Housing and Urban Development."

Guest bloggers that have already contributed posts below on this topic include: Jeffrey Lubell, executive director of NHC research affiliate the Center for Housing Policy; NHC Executive Committee Member Carol Lamberg, executive director of Settlement Housing Fund; Anne Lindgren, chair of the Lantern Group, and former executive committee member for NHC and Settlement Housing Fund (joint post with Carol Lamberg); and NHC Trustee Larry Simons, former Federal Housing Administration commissioner.

Thursday, December 11, 2008

Guest Blogger Jeffrey Lubell: Strengthen and Expand the Mandate of the Nation's Housing Agency

America faces multiple pressing housing challenges, including: a dramatic increase in home foreclosures; rising numbers of elderly with specialized housing needs; increasing numbers of teachers, nurses, firefighters and other working families who cannot afford to live where they work; and emergency relocation needs related to hurricanes and other disasters. As the recent spike in oil prices revealed, the energy-inefficiency of many homes and/or their remote locations – far from job centers and public transit stops – leave many families vulnerable to energy price shocks. And it is at least in part families’ search for low-cost housing that drives them to buy or rent homes in far-flung locations, increasing the number and length of necessary car trips, which in turn increase energy consumption, greenhouse gas emissions, traffic congestion and the consumption of open space.

Despite the critical need for an effective and coordinated response to these housing issues, they routinely fall between the cracks of the jurisdictions of the different federal agencies. The U.S. Department of Housing and Urban Development administers a great number of important and effective housing assistance programs that merit continued and expanded support. But its mission, mandate, and funding all need to be expanded to cover the full range of pressing housing issues facing the nation.

Yes, by all means, let’s preserve and strengthen our existing stock of public and assisted housing and expand the number of families benefiting from housing vouchers. But ultimately, the base of support for these programs will be much stronger if the agency charged with administering them is seen as a key part of the solution to the critical housing challenges facing a broad cross-section of America.

Jeffrey Lubell is executive director of NHC's research affiliate the Center for Housing Policy, which specializes in developing solutions through research.

Monday, December 8, 2008

New Credit Suisse Report Projects Large Increase in Foreclosures Over Next Four Years

Released on December 4, a new Credit Suisse report forecasts that 8.1 million mortgages - or 16 percent of all mortgages - will be in foreclosure over the next four years. This differs largely from the agency's April forecast, which predicted an increase of 6.5 million foreclosures, or 13 percent of all mortgages, over the next four years.

Read the full report here.

Guest Bloggers: Carol Lamberg and Anne H. Lindgren on a Transparent Approach to Permanently Affordable Housing

Transparency is the gold standard of the day. In any public or private venture, the ordinary citizen is supposed to be able to understand what the issue is, who’s in charge, what the cost will be, and who is paying. This standard is rarely met, but almost nowhere is it less apparent than in housing programs. Not since the New Deal, with the 1937 legislation establishing public housing, have our political leaders been willing to confront directly the actual cost of developing and maintaining affordable housing.

Political reality simply gets in the way of good housing policy. Politicians from high cost areas are reluctant to admit how much it costs to finance, build and maintain modest housing. Government agencies impose unrealistic cost limits that are popular politically, but they do not work, especially when enacted in statutes that are hard to amend. The result has been a consistent effort to mask the true costs by providing a maze of shallow subsidies, soft second loans and tax incentives. Motivated developers, with an army of lawyers and accountants, have learned how to navigate this maze. The typical development pro-forma now easily includes as many as six sources of capital. Often 40% of the funds pay for non-construction costs. The process of putting the deals together is time consuming and ultimately more costly than necessary, although nobody really knows by how much.

The maze, often called creative financing or leveraging, has other inherent problems. The various programs have different requirements, the subsidy terms don’t match the financing terms, and the affordable housing projects are often left in jeopardy.

So let’s forget about realism and at least start out by advocating simpler, transparent, permanently-affordable housing programs. There are examples of success to be replicated.

Federal Housing Administration (FHA) insurance with project-based Section 8 programs worked well until attacked by the Reagan administration as a budget breaker. The attackers used deceptive calculations and cited a few failed projects to end the program. The Reagan math, actually invented in prior administrations, involved adding up the entire twenty years of a subsidy contract and crying “shame”, with claims of sticker shock. When the Section 8 contracts expired, many owners converted to market-rate housing. Others marked “to-market” a program conjured up by the Clinton administration.

A new administration should let good regional administrators set realistic cost guidelines, with reasonable incentives. Tax incentives, especially when “as of right,” have proven an effective way to encourage production. Families should pay twenty-five percent of gross income or thirty percent of income net of taxes as rent. If they do not pay, they should face eviction. A maintenance budget should be prescribed for local operating costs, and whatever is left from rental income should be available to pay debt service on a mortgage. With workable FHA insurance and contractual rent subsidies, banks could start lending again.

There are many variations on the theme. Britain and the Netherlands have funded very large nonprofit organizations that have taken over public housing and created new schemes to satisfy “customers.” Sweden has no income limits for public housing, which is very well maintained. The families who cannot afford the rent receive housing allowances. Singapore lets families buy their high rise apartments with twenty percent of their retirement savings, and after five years in residence, can sell the apartments on the open market.

Whatever the budget predicament, affordable housing is still an excellent stimulus, with a great multiplier effect to boost the economy. Young people, poor people and middle income families still cannot find decent housing within their means in many cities. In areas with a glut, rent allowances could make vacant units affordable. In areas with low or no vacancies and high costs, we still need new, government-supported housing. And we know that families who feel safe in their housing become more productive citizens.

We would like to avoid complex creative financing and build permanently affordable housing that would become a source of pride for America, as opposed to a maze of financial subterfuges that takes thousands of accountants to unravel.

Carol Lamberg is the executive director for the Settlement Housing Fund and co-chair of the New York Housing Conference. She also serves on the executive committee as the regional affiliate representative for the National Housing Conference.

Anne H. Lindgren currently serves as vice president of the Michaels Development Company. Ms. Lindgren is chair of the Lantern Group and has served on the executive committees for the Settlement Housing Fund and National Housing Conference.

Friday, December 5, 2008

Thursday, December 4, 2008

Wednesday, December 3, 2008

Guest Blogger Lawrence Simons: The Reinvention of HUD

When we get around to discussing the future of the U.S. Department of Housing and Urban Development (HUD), I believe it is an opportunity to restore the importance of housing to its historic role as being of vital importance to the economic well being of the country. The federal government has limited its role in housing to only helping the low- and moderate-income groups. In essence, it forgot that its housing policy helped to shape our overall economic policy. When I was the Federal Housing Administration Commissioner, I served on the economic policy council with the Secretary of Treasury, the head of the Office of Management and Budget, the Chairman of the Economic Advisors and the Presidents Domestic Policy Advisor. HUD has been relegated to such a limited role that it did not play the lead role in housing during Katrina and that Treasury has now usurped its policy role during the current crises.

This problem will have to be rectified by a top down approach. The incoming HUD Secretary should be a person of major stature, preferably with extensive housing experience.That person should be made part of the economic policy team. I realize that morale is low at HUD now, but strong leadership can turn it around. A strong leader will attract others to fill the key positions if there is the realization that housing once again has been recognized as having an important role in our federal government.

Lawrence B. Simons is the former Federal Housing Administration commissioner, an NHC Board of Trustees member and a Life Trustee of NHC.

Tuesday, December 2, 2008

Local Las Vegas News Team Investigates Neighborhood Stabilization Action Plans

In this brief video, a local Las Vegas news group called "City Scene" reports on the city's Neighborhood Stabilization Program Action Proposal. City officials from Las Vegas are featured outlining these plans, which were due to the Department on Housing and Urban Development yesterday.

The Neighborhood Stabilization Program provides grants to communities laden with high foreclosure rates and was authorized under Title III of H.R. 3221, the "Housing and Economic Recovery Act of 2008." Las Vegas, Nevada currently has the highest foreclosure rate in the nation and is eligible to receive approximately $14 million in Neighborhood Stabilization funds .

Read more about the high rate of home foreclosures in Las Vegas here.

Wednesday, November 26, 2008

$800 Billion Plan Tries to Make Mortgages and Loans More Affordable, Hopes to Loosen Credit Lines

The government announced yesterday a new plan that would invest nearly $800 billion to make home mortgages, car loans and credit lines more accessible to Americans. This plan would hopefully boost spending by lowering interest rates.

This new proposal requires the Federal Reserve to spend up to $500 billion to buy securities backed by mortgages that were guaranteed by government sponsored enterprises Fannie Mae and Freddie Mac. The Federal Reserve will also buy up to $100 billion of Fannie Mae and Freddie Mac's debt in order to expand their lending lines.

Meanwhile, the Federal Reserve and United States Treasury Department will also utilize a $200 billion program for a Term Asset Backed Securities Loan Facility that will lend against securities backed by car loans, student loans, credit card lending and small business loans that were backed by the Small Business Administration. The Treasury will provide $20 billion in credit protection to the Federal Reserve in connection to this program.

United States Secretary of the Treasury, Henry Paulson, released a press statement yesterday announcing the program.

The Washington Post reports on this crucial matter here.

Tuesday, November 25, 2008

FHA Relaxes Program Rules for Homeowners

On November 19, the Federal Housing Administration (FHA) took a huge step forward to aid troubled borrowers, relaxing program rules for homeowners who wish to qualify for relief under FHA’s Hope for Homeowners program – which was launched October 1 as part of the Housing and Economic Recovery Act of 2008. The changes, which will take effect in the next few weeks, should make it easier for borrowers to refinance into more affordable fixed-rate, government-backed mortgages. To be eligible for the program, borrowers must prove that they cannot afford their current loan, that they have made at least six payments on it and that they have not intentionally missed a payment, among other requirements.

To date, the Hope for Homeowners program has only received 111 applications from distressed homeowners – far less than the 13,000 people the program was intended to help. Steven C. Preston, secretary of housing and urban development, stated in speech last Wednesday that the new rules are intended to encourage more homeowners to apply for aid.

Read more here.

Monday, November 24, 2008

Congressman Frank Responds to Task Force Endorsement of FDIC Proposal

Congressman Barney Frank (D-MA), chairman of the House Committee on Financial Services, agreed with a press statement released last week by the NHC-led Foreclosure Prevention and Neighborhood Stabilization Task Force.

The statement was drafted in response to Sheila Bair's recent Federal Deposit Insurance Corporation (FDIC) proposal for a loan modification program that appropriately recognizes the widening scope of foreclosures occurring across the United States.

Congressman Frank, "moved" by the task force's statement, quickly drafted a letter to Treasury Secretary Henry Paulson urging the use of Troubled Assets Relief Program (TARP) funds in order to stem foreclosures.

Read Congressman Frank's letter here.

Thursday, November 20, 2008

Abromowitz Highlights Success of Agencies and Programs That Have Helped Low- to Moderate-Income Homeowners

At a time where all housing news seems to be bad news, David M. Abromowitz, a senior fellow at the Center for American Progress and guest blogger for “Open House,” says otherwise.

Today, the Baltimore Sun published an opinion editorial by Abromowitz, in which he notes that little attention has been paid – both during the presidential campaign and otherwise – to solutions that have enabled families with average or below-average incomes to afford a home or rent a decent apartment. These solutions are what Abromowitz calls "Homeownership Done Right."

Abromowitz highlights several notable agencies and programs that have helped low- to moderate-income families across the country afford their homes, contributing to decreased incidences of default among this group. He cites the Massachusetts Affordable Housing Alliance and Self Help in North Carolina as two agencies who have been successful in aiding these homeowners.

Additionally, Abromowitz emphasizes the success of community land trusts in more than 100 working-class neighborhoods across the country – which report a less than 1 perfect foreclosure rate. He also notes the importance of pre-purchase homeownership education and fixed-rate loans to help low- to moderate-income families get into and keep their homes, resulting in decreased incidences of default.

Read the full article here.

Wednesday, November 19, 2008

National Foreclosure Prevention and Neighborhood Stabilization Task Force Responds to FDIC's Loan Mods for Families Facing Foreclosure

Earlier today, the National Foreclosure Prevention and Neighborhood Stabilization Task Force responded to the FDIC's wholesale approach to loan modifications for families facing foreclosure. You can read the statement below, or download the PDF here.

“We applaud the Federal Deposit Insurance Corporation (FDIC) for introducing its Loss Sharing Proposal to Promote Affordable Loan Modifications. This is the most significant proposal to date to modify loans on a wholesale basis – a critical step toward a solution that is in proportion to the enormous scope of the problem. FDIC estimates its proposal could help prevent as many as 1.5 million foreclosures in 2009 – more than five times the estimated impact of the plan announced last week by the Federal Housing Finance Agency (FHFA). Without bold action, the foreclosure crisis will worsen, dampening prospects for an economic recovery.

FHFA and its partners should also be commended for recognizing the need for mass loan modifications. However, the chief problem with their plan is its limited scope.

According to Mark Zandi, chief economist for Moody's Economy.com, 1.6 million Americans will lose their homes in 2008 either in a foreclosure or distressed sale. Another 1.9 million are projected to lose their homes in 2009. RealtyTrac estimates that 765 thousand foreclosure filings were made on U.S. properties in the third quarter of 2008 alone – up three percent from the second quarter and 71 percent from the same period last year. In addition, the Center for Responsible Lending calculates that over 40 million homes will lose value due to proximity to foreclosures.

Unfortunately, foreclosure mitigation efforts to date have not been as successful as anticipated. Credit Suisse estimates that 45 percent of loan modifications done in fall 2007 have already gone back into default. By making the payments affordable to each family based on their income, on a long-term basis, the FDIC plan has a much better chance of success.

We encourage leaders in the Administration, House and Senate to work with the FDIC to implement their proposal, or a plan of similarly wide impact, as soon as possible. Assistance for renters who are impacted by foreclosures should also be integrated into any plan. A wholesale approach to loan modifications that provides incentives for servicers and investors to agree to the modifications, while ensuring that homeowners can afford their modified mortgages, will help shift the tide for families, communities and our nation as a whole.”

The following members of the National Foreclosure Prevention and Neighborhood Stabilization Task Force have signed on to the above statement:

CDFI Coalition
Center for American Progress Action Fund
Center for Responsible Lending
Citizens' Housing and Planning Association
Consumer Federation of America
Enterprise Community Partners
Housing Partnership Network
Mercy Housing Inc.
National Alliance of Community Economic Development Associations
National Community Land Trust Network
National Council of La Raza
National Housing Conference
National Low Income Housing Coalition
National NeighborWorks Association
National Policy and Advocacy Council on Homelessness
NCB Capital Impact
Wisconsin Partnership for Housing Development, Inc.

Tuesday, November 18, 2008

States and Localities Publicize NSP Action Plan Proposals

Last Friday, November 15, state and local governments eligible to receive additional funding from the Neighborhood Stabilization Program were required to make their action plan proposals available for public comment. Across the nation, town hall meetings and forums are being held to open discussion on each jurisdiction's proposal.

These state and local plans are also available here through the Foreclosure Response project on HousingPolicy.org.

State and local governments have experienced difficulty in forming concrete action plans as they scramble to meet program deadlines. Moreover, each jurisdiction must create a plan that addresses their communities needs in order to make the greatest impact amidst the ongoing foreclosure crisis.

The Detroit Free Press reports that areas such as Detroit, MI are eager to use this funding to purchase foreclosed properties as well as to remove blighted and vacant houses. In Detroit, nearly 45,000 homes are abandoned and sit vacant.

Finalized versions of these proposals must be submitted in final form to the Department on Housing and Urban Development (HUD) by December 1st. The Neighborhood Stabilization Program was created under H.R. 3221, the "Housing and Economic Recovery Act of 2008."

Monday, November 17, 2008

"Out Loud" Podcast Focuses on Neighborhood Stabilization

The Center for Housing Policy, NHC's research affiliate, produces a monthly Podcast series called Out Loud, which plays tribute to noteworthy housing policies that take place at both state and local levels.

This month's Podcast discusses topics on neighborhood stabilization and features Danilo Pelletiere, research director at the National Low Income Housing Coalition, a DC-based non profit that is dedicated to solving America's affordable housing crisis.

During the Podcast, Mr. Pelletiere reminds us that the foreclosure crisis is not only affecting homeowners, but also single-family and multifamily properties occupied by renters.

To learn more, listen here.

Friday, November 14, 2008

The Power of Blogging in Explaining the Financial Crisis

With new news about the financial crisis breaking daily – and oftentimes even hourly – MIT management professor and former director of research at the International Monetary Fund, Simon Johnson, along with his friends Peter Boone and James Kwak, determined there was a need to create a new blog focused on “what happened to the economy and what we can do about it.”

The blog, called “Baseline Scenario,” was launched in September and also accompanies Johnson’s two-month-long Global Crisis lecture series – a noncredit course at MIT open to anyone interested in discussing developing economic events.

“There's a big thirst for listening to accessible discussions,” said Johnson.

The professor also noted that the idea behind the series was to get “[students] to get enthused” by posting on the blog.

“There are no stupid questions,” Johnson added. “Even I’m confused about some things – but the point is to get students engaged.”

In addition to his students, the blog - which is now available on our "Blogroll" - is written for anyone interested in the topic, serving as a valuable resource for all individuals who want to participate in the conversation about the economic crisis.

Read more here.

FDIC Announces New Plan to Prevent Foreclosure

The Federal Deposit Insurance Corporation (FDIC) presented a new loan modification program yesterday that would assist homeowners facing foreclosure. The proposal, which will be publicized later today, is aimed to assist borrowers who are at least two months behind in their mortgage payments.

Under this program, eligible homeowners would receive a loan modification that requires them to spend no more than 31% of their monthly income on housing expenses. Meanwhile, participating lenders are guaranteed that if the borrower falls behind on their payments post-modification, the federal government will cover up to half of the new losses, in most cases.

This FDIC plan has received praise from many lawmakers including Senate Banking, Housing and Urban Affairs Committee Chairman, Christopher Dodd (D-CT), who supported the proposal yesterday in a Full Committee Hearing. Those who support this plan believe it will endorse sustainable loan modifications and reach a wide realm of troubled homeowners at this critical time. The FDIC believes this program will be able to assist 2.2 million individuals with loan modifications and prevent 1.5 million foreclosures.

Meanwhile, opponents to this proposal do not wish to use part of the $700 billion given to the United States Department of Treasury from the Emergency Economic Stabilization Act (EESA) to fund this program. The FDIC estimates that if enacted, this program could cost the federal government $24.4 billion.

Earlier today, Interim Assistant Secretary for Financial Stability Neel Kashkari submitted written testimony for a hearing with the House Subcommittee on Domestic Policy, which suggested that Treasury Secretary Paulson has taken this plan under consideration.

Read more here.

Wednesday, November 12, 2008

New Streamlined Modification Program Targets Delinquent Homeowners

On November 11, Federal Housing Finance Agency (FHFA) Chairman Jim Lockhart announced a new program entitled the "Streamlined Modification Program, " which hopes to curb foreclosure by simplifying the process that determines whether homeowners are eligible to receive new loans.

The program will provide assistance through a variety of methods. Options include renegotiating mortgage payment loans to equal 38% of the homeowner's annual income, extending loan terms from 30 years to 40, reducing interest rates or delaying payments on the principal of the loan. The Streamlined Modification Program will take effect December 15, 2008.

In order to qualify for the program, borrowers must have a mortgage that is owned or guaranteed by Fannie Mae/Freddie Mac, presently occupy the home, be 90 days delinquent on their current mortgage payment, demonstrate financial hardship, have not declared bankruptcy and owe more than 90% of what the home is currently worth.

Although this new measure intends to keep homeowners in their homes by using an effective loan modification process that provides individuals with more affordable loans, it has also raised many eyebrows from federal leadership, policy makers and affordable housing advocates alike.

While the program is modeled after a similar loan modification measure taken by the Federal Deposit Insurance Corporation (FDIC) at IndyMac, FDIC Chairwoman Sheila Bair has publicly criticized the Streamlined Modification Program for focusing so narrowly on government sponsored enterprises Fannie Mae and Freddie Mac. Bair also questions the overall implementation of the program and currently advocates for a program that addresses foreclosure prevention through loan modification at a much larger scope.

The FDIC, alongside leadership in the Treasury Department and the Federal Reserve encouraged the federal government to aid "creditworthy borrowers" in a press release today.

Read more here.

Monday, November 10, 2008

Guest Blogger Frank S. Alexander: When Supply Exceeds Demand

Through most of our history the supply of land, and of housing in particular, has been just short of demand – with a constant stimulus for new construction yet pressure on prices widening affordability gaps. Communities throughout the country are now facing the reverse situation – the supply of properties suddenly exceeds the demand and fear seems to be the most common currency. In the face of fear perhaps the best response is to take a deep breath and learn from those who have faced this situation before.

The industrial cities of the rust belt and the core inner cities of many metropolitan areas have for decades now faced growing inventories of properties left vacant and abandoned. Unlike most other assets in our market economy, property is by definition unique – no two tracts of property are identical and it's value is always fixed in location. The consequence of this is that the costs of abandonment are never confined to the property itself, and instead spread to adjoining properties and neighborhoods like a contagion. Local governments see revenues decline and costs increase as more and more owners turn away from their properties.

When supply exceeds demand one possibility is to reduce supply by “banking” it. Over the past twenty-five years public land bank authorities have begun to acquire and control excess supplies of vacant, abandoned and tax delinquent properties. The most successful of these is in Genesee County (Flint), Michigan where the land bank moves quickly to acquire a thousand properties a year – demolishing some, stabilizing others, and, when possible, returning properties to the open market with a keen eye toward affordable housing. The Neighborhood Stabilization Grants (HR 3221) provide for the first time a key federal role in local government land banking of surplus properties. When supply exceeds demand in the property markets, the properties need to be converted from liabilities to assets and land banking can be a bridge to stable affordable housing.

Read more of Frank S. Alexander's work on land banking here.

Frank S. Alexander is a Law Professor at Emory University School of Law.

Sunday, November 9, 2008

Deadline For NSP Action Plans Just Three Weeks Away

States and localities across the nation have until November 15 to publicize how they plan to use grants provided to them under the U.S. Department of Housing and Urban Development's Neighborhood Stabilization Program (NSP), which is authorized under Title III of the Housing and Economic Recovery Act of 2008, H.R. 3221. You can find the draft action plans for each state here on HousingPolicy.org as they become available.

State and local governments must submit these action plan proposals to HUD by December 1st, leaving little time for revisions to be made.The $3.92 billion program is designed to help communities where home values have fallen because of foreclosed and abandoned houses. While this program could potentially revitalize neighborhoods across America, state and local governments need to act quickly in order to meet their approaching deadlines.

The Washington Post recently detailed the potential use of these funds in Virginia, Maryland, the District and other hard-hit localities. While jurisdictions in Washington, DC will receive $22 million in NSP relief, these jurisdictions face difficult decisions on how to use the funds. Officials are considering whether to buy properties and resell or rent them to low-income residents, or help people hoping to buy the houses. Jurisdictions could also buy blocks of abandoned properties, demolish the homes and then hold onto the land until housing markets improve.

Because these decisions are so timely, the Center for Housing Policy, KnowledgePlex, the Local Initiatives Support Coalition and the Urban Institute have created the Foreclosure Response project to help states and localities determine how to use these funds. Visit HousingPolicy.org for more information.

Friday, November 7, 2008

House Speaker Pelosi Pushes For Quick Action on Tax Stimulus Plan

While some in Congress are cautious to push for a tax stimulus package before President-elect Barack Obama takes office, House Speaker Nancy Pelosi advocated otherwise yesterday, calling for a two-stage effort to boost the U.S. economy. The first part of this plan would include a $60 billion-to-$100 billion stimulus package this month, which would then be followed by a companion measure early next year that would include a "permanent tax cut."

"The economy needs something sooner" than next year, Rep. Pelosi said, stating that any measure enacted in a lame-duck session of Congress this month would serve as a down payment on additional stimulus enacted later.

Read more here.

Thursday, November 6, 2008

President-Elect Faces New Economic Challenges

While yesterday’s headlines celebrated Obama’s history-making presidential win, those of today point towards the challenging obstacles the new president-elect will face the moment he takes office.

In addition to his promise to aid homeowners facing foreclosure, there has been buzz about the passage of another economic stimulus plan – one that may come sooner, rather than later.

Before the election, Congressional Democrats had discussed a lame-duck session to take up a bill that would inject $150 billion to $200 billion into the economy. If Obama indicates that he would favor a preinauguration special session, Congress could act this month on legislation of this nature.

Obama aides say the lame-duck session could pump as much as $60 billion into the economy in immediate relief in the form of additional outlays for food stamps, extended unemployment benefits and subsidies to the states to minimize their spending cuts.

However, there are risks that would come with this lame-duck session. Many question whether or not the Democrats should risk a Bush veto in a lame-duck session, instead of waiting for Obama to take office so that a more complete recovery package has a better chance of implementation.

Read more about the economic challenges facing Obama here.

Wednesday, November 5, 2008

Barack Obama Becomes Nation's 44th President

Last night, Democratic Presidential Candidate Barack Obama (D-Ill.) was elected as the 44th President of the United States, earning 349 Electoral Votes at this point in time. Paying homage to the state of Illinois, Obama delivered his acceptance speech to a crowd of more than 225,000 supporters in Chicago's Grant Park. The video of the speech is provided below.

Additionally, you can view the transcript of his speech here.

Tuesday, November 4, 2008

California Congresswoman Fights for More NSP Funding

The state of California is set to receive $145 million under the Department of Housing and Urban Development’s (HUD) Neighborhood Stabilization program, a provision of H.R. 3221, the "Housing and Economic Recovery Act of 2008." This act was signed by the Bush Administration and became Public Law 110-289 on July 30.

The Neighborhood Stabilization program provides state and local governments with grants that can be used to acquire and develop foreclosed properties. In doing so, HUD hopes to prevent further decline in home values and reduce neighborhood blight. Eligible grantees must publicize action plan proposals by November 15 that they will then submit to HUD by December 1 in order to receive this funding.

U.S. Representative Barbara Lee (CA-09) acted as a large supporter for the Neighborhood Stabilization Program and worked diligently to include the $4 billion dollar program in H.R. 3221. In Congresswoman Lee's district, Oakland alone will potentially receive $8.2 million for foreclosure mitigation efforts.

On October 16, Congresswoman Lee released a public letter urging State Governor Arnold Schwarzenegger to direct a greater portion of funding to communities in her district, such as Oakland, CA, that have been hit hardest by the foreclosure crisis. Under the Neighborhood Stabilization program, state governments can choose to appropriate additional emergency assistance to areas that have been most severely impacted by the foreclosure crisis in their action plan proposal.

Read more here.

Thursday, October 30, 2008

Guest Blogger Barbara Sard: Tucked Away in the Foreclosure Bill

The foreclosure legislation signed into law this summer (H.R. 3221) is best known for its provisions aimed at stabilizing the home ownership market – and for the landmark creation of an Affordable Housing Trust Fund.

But tucked away in the bill were some important improvements in existing rental housing programs for lower-income Americans.

, the bill includes a series of reforms that will make it easier for housing agencies and developers to use “project-based” vouchers to provide affordable rental opportunities in mixed-income settings. (Using these "project-based" vouchers, agencies are currently allowed to tie up to 20 percent of their housing vouchers to particular buildings sites.)

Second, the bill expands access for voucher holders to properties funded by HOME or the Low Income Housing Tax Credit, while protecting families against extra out-of-pocket costs for such rentals.

Third, the bill increases the amount of Low Income Housing Tax Credits that will be available this year and next. It also contains the first-ever requirement that data be collected on characteristics of the residents of tax credit properties. Knowing more about the age, race, income, disability status and family composition of this group will help inform public policy decisions for years to come.

Sometimes big bills provide the opportunity for modest changes that have languished on the legislative to-do list for months or even years. This was definitely one of those times.

Go here for a fuller description of these provisions.

Barbara Sard is the director of housing policy for the Center on Budget and Policy Priorities. The housing work of the Center is focused primarily on the intersection of housing and welfare reform at the national, state and local levels. Sard's work focuses on low-income housing policy, including the housing voucher program and admission to subsidized housing.

Wednesday, October 29, 2008

Shared Equity Homeownership As Useful Tool for the Neighborhood Stabilization Process

In the wake of the mortgage crisis, many are looking to shared equity homeownership as a way to stabilize neighborhoods and rebuild the ladder to sustainable homeownership for low- and moderate-income families.

In concert with this, NCB Capital Impact recently issued a report called "Preserving Affordability of NSP Funded Foreclosed Properties" on how to use shared equity homeownership strategies as part of the Neighborhood Stabilization process.

Read the report here.

Tuesday, October 28, 2008

Bailout Bill May Rescue Detroit's Big Three Automakers

Recent statistics show that sales for Detroit's big three automakers - Ford, General Motors and Chrysler - are down by double-digit percentages. As these companies continue to struggle, policymakers from the Michigan Congressional delegation are pressuring the federal government to aid automakers using funds from the bailout plan.

As early as last week the delegation, headed by Rep. John D. Dingell (D), asked Treasury Secretary Paulson and Federal Reserve Chairman Bernanke to use their "broad regulatory authority" to "promote liquidity in the U.S. auto industry."

Treasury Department officials said yesterday that automakers are eligible for aid under a broad interpretation of the law that authorized the $700 billion financial rescue.
"The law grants the secretary broad authority to purchase troubled assets that he deems important to improving financial stability"

Treasury spokeswoman Jennifer Zuccarelli.
This matter continues to be disputed as other organizations, including insurance corporations and American subsidiaries of foreign banks, request support from the U.S. Treasury Department as well.

Read more here.

Monday, October 27, 2008

Bailout Bill May Expand to Cover Wide Range of Industries

The $700 billion bailout bill may soon be expanding to include a wider variety of industries, as insurers, automakers and American subsidiaries of foreign banks claim that they too need financial support as a result the credit squeeze and dire state of the economy.

The Financial Services Roundtable wrote Treasury officials Friday requesting that the plan to buy $250 billion in bank stock include insurers, automakers, securities dealers and U.S. subsidiaries of foreign companies, including banks.

The Emergency Economic Stabilization Act allows Paulson to invest in any financial institution - including insurance companies. However, when the Treasury drafted rules for spending the first $250 billion to recapitalize banks, the program was limited to banks and bank holding companies. Treasury officials would have to redraft the rules for the program or create a new one in order to buy stock in insurance companies.

Read more here.

Friday, October 24, 2008

New Resources Available For Neighborhood Stabilization Efforts

The Foreclosure Response team – formed by the Center for Housing Policy, the Local Initiatives Support Corporation (LISC), Knowledgeplex, and the Urban Institute – has come together to provide resources for neighborhood stabilization and foreclosure prevention efforts in communities, the first installment of which can be viewed here on HousingPolicy.org.

These purpose of these resources is to aid states and localities engaged in an expedited process to determine how to allocate nearly $4 billion the federal government is providing to help stabilize the communities that have been hardest hit by the mortgage foreclosure crisis.

Decisions about how to use these funds, distributed by the U.S. Department of Housing and Urban Development through the Neighborhood Stabilization Program (NSP), must be made quickly: Initial Action Plans are due by December 1, 2008, and all money must be obligated for use on a specific project within 18 months of receipt.

To help states and communities make informed decisions about how to allocate and spend these funds, the Local Initiatives Support Corporation (LISC) has developed a dataset with foreclosure "needs scores" for CDBG-jurisdictions within each state. These scores incorporate measures of subprime lending, foreclosures, delinquency, and vacancies to help state and local officials quickly assess the relative needs of different jurisdictions for neighborhood stabilization funding within each state and allocate funds accordingly.

This resource represents the first release from the Foreclosure Response project, and the team plans to release additional materials that can help communities with the process of developing foreclosure prevention and neighborhood stabilization programs. A full set of resources, including a policy guide, interactive discussion forum, and customizable data reports, will be released in the first part of 2009.

FDIC Chairwoman Encourages Loan Modifications

Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, testified before the Senate Committee on Banking, Housing and Urban Affairs urging policymakers that "we need to act and we need to act quickly and we need to act dramatically."

The full committee held a hearing yesterday morning to investigate "Turmoil in the U.S. Credit Markets: Examining Recent Regulatory Responses." Bair testified alongside Neel Kashkari, interim assistant secretary for financial stability and assistant secretary for international affairs, U.S. Department of the Treasury; Brian Montgomery, federal housing commissioner and assistant secretary at the Department of Housing and Urban Development (HUD); James Lockhart, chairman of the Federal Housing Finance Agency; and Elizabeth Duke, governor of the Federal Reserve System.

Witness panelists, including Bair, discussed the creation of a plan for standardized loan modification practices to be used by mortgage servicing firms that would provide eligible loans with a partial federal guarantee. This plan would hopefully protect homeowners from foreclosure, which has become an urgent problem as a new study reveals the rate of foreclosure filings have increased 71 percent in the past year.

The creation of programs that encourage loan modifications have become highly debated in light of current economic turmoil. The Department on Housing and Urban Development initiated a program called Hope for Homeowners on October 1 that supports loan modifications with government guarantees, but the program will take time to implement before providing tangible relief to eligible communities.

Read more about yesterday's hearing and the loan modification debate in this article published by the New York Times.

Thursday, October 23, 2008

Homeowners "Under Water" As They Owe More Than Their House is Worth

A recent Reuters article chronicles a problem many homeowners are now facing, as they find themselves “under water” – owing more on their mortgages than their homes are worth. In fact, nearly one in six U.S. homeowners are finding themselves dealing with negative equity home values, which could further threaten the U.S. economy with a new wave of foreclosures and bankruptcies. New data from Moody’s says that approximately 12 million homeowners owe more than their house is worth.

Read more here.

Past Chairman Testifies before House Committee

Former Federal Reserve Chairman, Alan Greenspan, will testify today as a witness panelist before the House Committee on Oversight and Government Regulation in a hearing investigating the "Role of Federal Regulators in the Financial Crisis."

This hearing is part of a five-part series scheduled by Committee Chairman Henry Waxman (D-CA) in light of the current economic crisis. It is highly unusual for committees to hold hearings this late in the year because of the hectic election season.

"This American Life" Outlines Cause of Foreclosure Crisis

This American Life, a program featured on Chicago Public Radio, recently did a show in conjunction with NPR News that outlined the reasons for the foreclosure crisis. In this episode, entitled "The Giant Pool of Money," hosts Alex Blumberg and Adam Davidson explain what caused the foreclosure crisis, how it relates to Wall Street and how it will affect the U.S. in the coming years.

The hour-long version of this episode can be found here.

Alternatively, NPR featured a 12-minute companion piece about the topic on its show All Things Considered, which you can listen to here.

In the same vein, a recent Opinion Editorial in the New York Times highlights the debate over who is to blame for the foreclosure crisis.

Tuesday, October 21, 2008

Bernanke Supports Potential Economic Stimulus Plan

Ben Bernanke, chairman of the Federal Reserve, endorsed plans for a second economic stimulus package, during his testimony in a House Budget Committee Hearing yesterday morning. It has been predicted that such legislation will be worked out by Congress during the upcoming lame duck session and will include provisions for infrastructure repair, unemployment insurance, additional funding for food stamps, and a potential tax rebate plan.

Chairman Bernanke recommended that Congress should not only use this potential legislative measure to boost consumer spending, but also to increase accessibility to credit lines. In doing so, Bernanke believes a second stimulus plan will promote job creation and economic growth.

Today's edition of the Washington Post reports on this crucial matter.

Fannie and Freddie's Regulator Suggests U.S. Backs Their Debt

James Lockhart, director of the Federal Housing Finance Agency (FHFA), attended the Mortgage Bankers Association conference in San Francisco yesterday. During the conference, Lockhart tried to shore up confidence in Fannie and Freddie despite turmoil in the debt markets by assuring attendees that the government has effectively guaranteed Fannie and Freddie's debt. In another interview, he expressed that "The U.S. government will be behind them short, medium and long term."

Read more here.

Monday, October 20, 2008

Deficit in the Federal Budget Rises

With the U.S. government planning to spend $250 billion for the economic rescue plan and potentially using another $150 billion, as reported online by CNN Politics, in a second economic stimulus package, the deficit in the federal budget is increasing rapidly. The New York Times reports on this crucial matter.

Sunday, October 19, 2008

Analysts Examine Possible Consequences of Economic Rescue Package

In the Sunday news edition of the Washington Post, an article outlines possible implications of the economic rescue plan designed and executed by Congress and the current Administration. Although most economists and policy makers agree that interest rates must come down in order to restore stability to the housing market, the authors of this article point out that recent data shows that interest rates are actually rising under the current economic relief package. While the housing market has the potential to improve in time, the authors also provide a list of possible alternatives to the economic rescue package that might help restore the U.S. economy.

Friday, October 17, 2008

House Speaker Nancy Pelosi and Others Discuss Measures to Revive Economy

With lawmakers fearing a worsening recession, House Speaker Nancy Pelosi (D., Calif.) held an "economic summit" Monday, bringing together many influential economists to convince lawmakers that a "massive spending package is needed to forestall economic disaster." This stimulus package, which would be Congress’ second stimulus plan created in the past year, could amount to as much as $300 billion and would likely include new government spending in areas such as road and bridge construction, aid to cash-strapped state governments and extra funds for food stamps and unemployment insurance. These provisions are similar to a bill that passed in the House but died in the Senate in September, despite the combined efforts of Senate Majority Leader Harry Reid (D-NV) and Senate Appropriations Committee Chairman Robert Byrd (D-WV).

No final decisions have been made on details of the package or changes to the congressional schedule, but Pelosi said lawmakers will hold public hearings on a variety of spending proposals during the next few weeks to assemble a package that could be put to a vote soon after the election on Nov. 4. The Senate is already reconvening the week of Nov. 17; several Democratic leaders in the House are now considering reconvening the week of Nov. 17 to discuss this and other issues.

Administration, Congress Defend Recent Actions

President Bush held a brief press conference earlier this morning at the U.S. Chamber of Commerce in support of the administration's recent decision to inject approximately $250 billion into both large and small banks to stabilize the economy. This decision, though not surprising, is a result of the recent passage of the Emergency Economic Stabilization Act (EESA), passed by Congress and signed into public law by the president on October 3rd, which gave the U.S. Department of Treasury authority to use up to $700 billion to purchase distressed assets and restore liquidity to the financial market.

According to President Bush, "these are decisive measures aimed at the heart of our financial challenges. And they're big enough and bold enough to work. And the American people can be confident that they will."

This press conference followed an earlier press release submitted by Senator Christopher Dodd (D-CT), chairman of the U.S. Senate Banking, Housing, and Urban Affairs Committee, who also supports the U.S. Treasury's decision to utilize EESA.

Thursday, October 16, 2008

Guest Blogger David Smith: Using the Troubled Assets Recovery Program as an Opportunity to create Workforce Housing

The opportunity: create workforce housing by turning condos into apartments. While the principal purpose of the Troubled Assets Recovery Program (TARP) contained within the Emergency Economic Stabilization Act (EESA, more commonly known as 'Paulson's legislation' or inaccurately called the 'bailout') is providing certainty and liquidity to large banks and through them the broad US economy, TARP also creates a legitimate opportunity to create workforce housing:

· For people above the LIHTC income limits and below first-time homeownership.

· By converting unsold single-families or condos into apartments at stipulated rent levels.

It was precisely this group of people most victimized by subprime excesses, so restoring them to a secure rental tenure, in workforce housing, would not only address a portfolio problem, it might give them back some measure of social justice.

1. Over-levered markets can turn into properly priced workforce housing. Many of the markets that have large overhangs of unsold condos or neighborhoods struggling with delinquent subprime borrowers are those in greatest need of workforce housing, a need that will not abate.

2. Last time around, the affordability chance was missed. Ironically – or perhaps it's not ironic at all – once before we had the opportunity to capture good conventional properties cheaply for affordable housing, after the S&L debacle, in the Resolution Trust Corporation (RTC) affordability program. But we missed our chance.

3. Government should embrace an affordability objective. Not only is this good long-term government policy (it's much cheaper to buy them now than build them three years hence), it's also sound recovery economics, as rapid execution to an occupied workforce rental tenancy could help stabilize many markets.

4. Affordability proponents must act quickly. We can seize the opportunity if those who seek affordability can come together quickly, and bring both financial and intellectual resources to tackle the restructuring and repositioning required.

For more, see Recap Update 58

Tuesday, October 14, 2008

Guest Blogger: John MclIwain Provides Insight as Presidential Candidates Outline Housing Platforms

The economic plans of presidential candidates, Barack Obama and John McCain, are compared in today's New York Times. Although the article suggests that neither proposal provides a definite solution to the United States' current economic troubles, each plan attempts to focus on action rather than "short-term budget discipline." Both campaigns released their economic plans in light of the third and final presidential debate, which will occur tonight in Hempstead, New York.

John McIlwain, chairman at the Center for Housing Policy and senior resident fellow at the Urban Land Institute, analyzes McCain's "Housing Resurgence Plan" in his most recent blog entry.

A Review of McCain’s Housing Resurgence Plan

Senator John McCain’s campaign has just released a new plan intended to help the faltering U.S. economy. Called the Pension and Family Security Plan, it “builds on the American Homeownership Resurgence Plan (the “Resurgence Plan”) that he announced last week. Today’s announcement notes that

“There are 3.1 million homeowners in America who are delinquent or in default in their first mortgage.

“There are 11.8 million underwater first mortgages in the United States. An underwater mortgage occurs when a homeowner owes more money than the market value of a home.”

The Resurgence Plan is an effort to resolve this unprecedented level of mortgage delinquencies in the U.S.

While not the first plan to deal with mortgage defaults, it could be the most comprehensive and is worth a close look although important details have yet to be set out. Other plans now in place include the following:

The basics of the Resurgence Plan appear simple:

“The McCain Resurgence Plan would purchase mortgages directly from homeowners and mortgage servicers, and replace them with manageable, fixed-rate mortgages that will keep families in their homes. …

“The McCain resurgence plan would be available to mortgage holders that:

· Live in the home (primary residence only)

· Can prove their creditworthiness at the time of the original loan (no falsifications and provided a down payment).

“The new mortgage would be an FHA-guaranteed fixed-rate mortgage at terms manageable for the homeowner.”

Simple and straightforward as this is, there are still questions that need to be resolved, some of which are as follows:

  • Are refinance loans to be excluded? Is the requirement that homeowners have made a down payment at the time the loans were originally made intended to exclude refinances?

  • Who would be the sellers? Saying that the federal government “…would purchase mortgages directly from homeowners and mortgage servicers…” is presumably an error as neither owns mortgages. The mortgages in question are in fact held either by a financial institution (e.g., a bank, an insurance company, a pension plan, or even Fannie Mae and Freddie Mac), or by a trust established to back an issue of mortgage-backed securities (“MBSs”). Thus the government would have to buy the mortgages from them, not the homeowners. The Plan is silent on whether lenders would be required to sell mortgages (mandatory participation would be unlike the other plans); if participation in the plan is to be voluntary, the willingness of lenders to participate would depend largely on the price to be paid by the government.

Alternatively, the plan may contemplate not the purchase of mortgages from a bank or trust, but instead working directly with homeowners. For instance, the government might directly offer qualified homeowners sufficient funds to enable them to fully pre-pay their existing mortgages (including the amount of any pre-payment penalties). This would be the same as buying loans at par, i.e., 100 cents on the dollar.

  • At what price would mortgages be purchased? Assuming mortgages are to be purchased, the issue of price is important to the cost of the program to the taxpayer and to the willingness of lenders to participate, assuming the program is voluntary. The Plan says only that the Secretary of the Treasury would be instructed to use “…the authorities provided in the stabilization bill, the recent housing bill, and the U.S. government's conservatorship of Fannie Mae and Freddie Mac…” to purchase mortgages.

Generally, EESA (“the stabilization bill”) requires the Secretary to purchase mortgages for no more than “the underlying value of the asset. Under FHA’s HOPE for Homeowners program, authorized by HELA (“the recent housing bill”) “…lenders will be encouraged to write-down the outstanding mortgage principal balances to 90 percent of the new value of the property.On the other hand, the FHFA presumably could instruct Fannie Mae and Freddie Mac to purchase defaulted mortgages at par.

Thus the Resurgence Plan either is quite similar to existing plans in that it proposes to invite lenders and other holders of mortgages to voluntarily sell mortgages for some negotiated price reflecting the value of the loan, or it is quite different in that participation in the program would be mandatory on the part of lenders, and/or the price the government would pay would be above the loans current value (which might require additional legislative authority).

If the Resurgence Plan proposes to pay above current value, lenders would avoid or significantly reduce their losses. This raises the issue of moral hazard, namely, should taxpayer funds be used to spare banks and holders of MBSs economic loss on bad investments they made and would this encourage future loose lending by banks and others.

  • Who are eligible homeowners? The information on the plan says eligible homeowners are those who live in the home and who, when they originally took out the loan, had good credit and made a down payment. Oddly, the Resurgence Plan is silent on whether the loan must be in default. In fact, the example used in the release on October 14th makes no mention of the loan being in default, perhaps suggesting that underwater loans need not be:

“How The Program Works:

“An American buys a house that is his or her primary residence for $250,000 with a conservative, 20 percent downpayment ($50,000 down).

“His or her community property values fall by 30 percent, leaving him or her with a home worth $175,000 and a mortgage still worth $200,000.

“Under the McCain Plan, their mortgage would be retired, and they would receive a new, FHA guaranteed, 30-year fixed mortgage, at a low interest rate that reflects historical norms and the current market value of his home.”

This raises certain questions.

    • Should all homeowners in default be bailed out, regardless of why they took out a mortgage they can no longer afford (loss of a job, a bad bet on the housing markets, speculation, or being flim flamed by an unscrupulous mortgage broker)?

    • Would the plan cover only mortgages currently in default? If so, millions of homeowners with future loan defaults would not be protected. If not, and future loans in default would be eligible, would the plan encourage homeowners to default in the future?

    • If the plan intends to cover homeowners whose loans are not in default but whose loans are now (or in the future become) underwater, is that fair to neighbors whose homes also lost value but who took out smaller loans that are not underwater?

  • Would the plan be good for the homeowners and the economy? The Resurgence Plan would, like the other plans currently in place, help homeowners avoid foreclosure. If the idea is for the Plan to pay lenders and others more than the current loan value, then it might be of great benefit to financial institutions and other holders of MBSs around the world. Recognizing that it would take years to complete as the eligibility of each homeowner and the amount of their new FHA mortgage would have to be determined, the Resurgence Plan nevertheless could have a substantial, positive impact on the U.S. economy in time. For example, it should:

    • Along with the other plans, help foreclosures that are one of the major drags on home values, especially in neighborhoods with high foreclosure rates;

    • Support the capital base of banks holding these mortgages in portfolio, and

    • Support the value of the MBSs and their derivatives (a stated goal of the plan) and avoid further write-downs by banks, hedge funds, and other holders of MBSs around the world.

So is the McCain plan a bold step forward, and if so, one in the right direction? The answers to these questions will have to await further details from the campaign. Based on information released to date, it could be anything from an extraordinary and politically controversial proposal to a repackaging of current plans. Given its potential, it’s important for enough details to be released soon so it can be assessed fairly.