Friday, June 26, 2009

Obama's Stimulus Plan: We Need Mandates to Spur Demand

For those 9 million Americans classified as struggling homeowners the idea that $275 billion is being pumped into the housing sector through President Obama's recently unveiled stimulus plan gives an initial ray of hope. But from where I sit as a long time realtor, business owner and community activist, it looks like the right hand doesn’t know what the left hand is doing.

Here are the details. Of that $275 billion being pumped into the economy the expectation is that about 5 million homeowners who have little equity or are upside down in their mortgages will be able to refinance through Fannie Mae or Freddie Mac. $200 billion has been allocated to back these entities. The other $75 billion is supposed to encourage lenders to make loan term modifications for those in foreclosure, or who are at risk of going into foreclosure. So what's missing?

Missing: No Cohesive Plan, No Mandate for Industry

Basically, there are 3 things missing here.

1) It's not enough.

Ok- I understand that some of the money needs to go to drive jobs in other sectors of the economy. But when it's going to bailouts that fund already failing car manufacturers, that just takes money away from where it would be most effective. There are a lot of folks angry at the idea of helping out an individual homeowner who got in over his head. Yet we're bailing out CEOs of major businesses instead of funneling that money to keep the housing economy viable.

2) No mandates for Creditors

What good will any of this do if qualified people still can't get home loans? Every day I see banks and creditors refusing to make loans or modify loans. I see people with high credit scores waiting months for loans. This hurts us all!

What about the whole credit rating system? Why don't we hear anything about how Equifax, Experian, Transunion are impacting this crisis? There should be mandates that require these organizations to report credit accurately. Where do they play in the scheme of things? I've heard that there is a new scoring model coming out for FICO. No one understood the rules on the last one. Is this any different?

Frankly, until there are mandates to make adjustments the banks and creditors and credit raters aren't going to do it. More houses will sit empty and more folks will continue to lose their homes. It's a vicious circle.

3) No Cohesive Plan

I heard HUD secretary Shaun Donovan the other night explaining how the stimulus plan will help bring some "underwater" homeowner payments down to 31% of income, if they are backed by Fannie Mae or Freddie Mac. What I didn't hear was how the mortgage insurers play into this whole deal. That's why I feel that this whole plan is so one sided. Incentives are just a drop in the bucket.

From Where I Sit

Here's my unique perspective. I host a real estate talk show at and sponsor a social network for real estate professionals at . Everyday I hear from the people most impacted by this whole situation. The callers to my show and podcast are homeowners, people facing foreclosure, and realtors all trying to make it through this crisis. Some of Obama's stimulus incentives will help some of these folks. What it won't do is enable many who want to buy to do so.

Without a cohesive plan that includes the mortgage insurers, bankers, and creditors, credit scoring organizations and requires some sort of mandate on loan modifications and lending rates it just won't be a long term solution. The housing portion of the economic stimulus plan just doesn't subsidize interest rate reductions for borrowers in a way that will spur demand and recreate a housing economy that will benefit everyone in the long run.


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