Save Main Street Before Motown, Posted by Charles

Yesterday afternoon, I had the pleasure of meeting with senior officials at the U.S. Department of Treasury. Now, I say “pleasure” because it appears that the folks at the Treasury Department are finally turning their attention to how they might use some of the $700 billion from that “rescue” package to stimulate housing.

I spoke with them at length about the possibility of buying down interest rates so that homeownership can be more affordable for potential buyers and current homeowners. Those of you who read NAR’s economist commentaries will know that, despite lowering the Fed Funds rate, mortgage rates have not budged. That’s a problem for potential buyers looking for low-cost mortgage credit. Buying down interest rates would help provide more affordable financing for potential buyers and homeowners. Economists at the Treasury said the same thing.

There’s just one problem: according to the Treasury, it’s not clear whether the legislation that was passed in October gives them the authority to buy-down mortgages. They need Congress to clarify the authority, and that could be a tough sell, given the concerns about the rescue package.

In recent days, the debate over the “rescue” bill has shifted to the automobile industry. We MUST continue to raise our voice to ensure that the housing market remains a top priority during the lame-duck session of Congress. If you haven’t already responded to our call for action on the Four-Point Plan, please do so. Show them that REALTORS and consumers are “United Toward Tomorrow.” — Charles McMillan, 2009 NAR President

  1. Steve Ellis

    We all appreciate the efforts of NAR perhaps more now than ever with housing being one of, if not the largest, the three pillars of our economy along with Financial & Automotive. Staying in the forefront of the all of the crises is critical in the priority of resolves for the nation. We cannot allow the bolstering of new car sales to overshadow or reap greater subsidies than the more primary issue being people keeping and affording a home.
    The recent recommendations to the fed proposing a reduction in interest rates would indeed create positive momentum to the industry. But, allow me to suggest taking this one step further without creating incremental financial loss to the fed or the tax payer.
    Not that our founding fathers or Hank Paulson would recommend the government become investors and part owners in the country’s business, but it has become inevitable and factual as the fed has taken part ownership in the financial corporations as a means of avoid a global melt down.
    Currently, similar strategies are being entertained with the auto industry, whereby the fed will be given ownership and a guaranteed return on their investment. Within the near future, it appears the fed will be a vested partner in two of the three pillars of our economy.
    Now comes the largest, most critical, and for the moment, the most ugly pillar; Housing. Let’s name it Cinderella.
    (Bear with this short story)
    She watched as her beautiful, wealthy sisters dug into their little Blackberry’s and called upon their lobbied friends in the senate for help. Why? Because they needed to sell more shinny, new, pumpkin cars and no one would give then a loan.
    Arriving back home, cheers rang through the house as the sisters rejoiced in the huge cash prize they’d been given. And to celebrate, they dashed off in their private jet to a spa…. somewhere in California she thinks.
    For a moment Cinderella dreams of having a shinny, new, pumpkin car for herself, but then she snaps back to her senses. “A place to live must come first.”
    With her knuckles worn to the bone from years of hard work, she weeps with the thought that now she will never have a home of her own and sad that many of her friends already have lost their homes.
    Okay, enough, we get it! It’s time for Cinderella to go to the ball folks. Financing and buying a new car will not help when you drive back to a foreclosed home.
    The Recommendation
    Now the exact numbers may be adjusted, but the fundamentals would be the same.
    The fed will offer to all home owners and buyers, whether they are in need of assistance or not, a federal loan with 0-2 percent interest on 50 percent of the current appraised value of their home up to $100,000. (Limiting the loan to 50% of the value assures the fed’s return on their investment) The remainder of their home’s principal would be refinanced with their current or new lender at the market rate.
    The federal loan would be locked for 5 years and would adjust incrementally to the market rate from year 5 through 10.
    The fed will also be entitled to the portion or percent of the original equity of the loan, in capital gains, if any, when the house is sold. (This should make up for the additional cost of capital the fed may have lost during the term of the loan)
    Another variable could involve the fed’s loans being interest only for the first 5 years and then incrementally increasing in principal portion payments.
    The Result
    This would be a dream come true for those currently scraping by and losing their homes.
    The program would be fair to all. The fed loans would also be offered to those who are not financially distressed and would be voluntary. It should ignite home sales for all.
    In the long run, more people keep their homes, sales rebound, the fed recoups their investment and the tax payers, as well as the economy as a whole, win.
    Who would manage such a huge task? Of course the banks would and that would be part of their return for the current bailout funding and shoring up their continued foreclosure drain.
    The Calling
    All said; Cinderella it’s time to go to the ball! Grab your well deserved attention away from your fat, well connected sisters. I am sure a senator or two would gladly return your slipper. And just maybe, next year you too can afford a shinny new car to drive to “your” home.
    Let’s just hope they stop making pumpkins by then.
    Next I am going to see if I can spell Cinderella using the letters in the full name of NAR.