Government slates $75B for homeowner help

The foreclosure crisis continues to clog the housing market, but help - with a $75 billion price tag - is on the way.

The latest figures from the Mortgage Bankers Association, released March 5, show that 11.1 percent of all one- to four-family homes - one out of every nine - is either in foreclosure or homeowners are at least one payment past due.

The uptick in foreclosures is hitting closer to home as well. Greene County logged 1,110 foreclosures in 2008, up 48 percent from 2007 and the highest number in at least a decade.

To stem the foreclosure tide across the U.S., President Barack Obama's administration is implementing the $75 billion Homeowner Affordability and Stability Plan, which includes refinancing assistance for homeowners in financial trouble and temporary payment reductions.

While most industry insiders agree action is needed to bolster the market, opinions are mixed about the potential impact of the current slate of options.

Stabilizing the market

The Homeowner Affordability and Stability Plan, or HASP, was announced March 14 and is three-pronged:

• homeowners whose home values have dropped to less than what is owed may be eligible for refinancing;

• homeowners who are unable to make payments due to a change such as losing a job or an increased interest rate can get lowered monthly payments for up to five years; and

• federal loan servicers Fannie Mae and Freddie Mac will continue to get backing from the federal government, ensuring more affordable loans in the future.

Todd White, mortgage banker for Arvest Bank, is hopeful combined efforts will reduce area foreclosures, which can have a devastating impact well beyond lost homes.

"There are studies that suggest that every foreclosure brings down the value of homes in that neighborhood by 5 (percent) to 9 percent, so any plan that prevents homes from going into foreclosure prevents price depreciation," White said. "We believe that if you can stabilize foreclosures and then bring this wave of first-time buyers back into the market, prices will slowly go back up."

Walt Nelson, real estate and finance professor at Missouri State University, agrees that the federal stimulus plan will increase home prices, which he said is good news for sellers, though he noted that homeowners considering selling their houses should hold on to them a little longer if they can afford to do so.

"I'm not saying you shouldn't negotiate, but the market has to earn it a little bit, because every time I've sold a property cheap, within six to eight months I've regretted it," said Nelson, who also is a Realtor. "This could be the wrong time, and in six months the economy could be zero and we could all be selling pencils. But I doubt it."

More help for the market

Beyond the government's homeowner assistance plan, the $787 billion American Recovery and Reinvestment Act includes a provision that could help stabilize the real estate market and boost homeownership.

That plan includes a tax credit of 10 percent of a home's purchase price, up to $8,000, for first-time homebuyers.

"The $8,000 credit is the best single product that has ever come out for giving money directly to a homeowner for purchase," said Doug Andrews, Realtor with Century Realty in Marshfield and past president of the Greater Springfield Board of Realtors.

The credit can be claimed by anyone who buys a home before Nov. 30 and has not owned a home in the last three years. Andrews said the credit should serve as a strong incentive for buyers looking at less-expensive homes, which will stimulate the rest of the market as well.

"You have to stimulate the market at the bottom end, because if the $100,000 homebuyer doesn't purchase, then the $140,000 homebuyer doesn't purchase, and the $180,000 homebuyer doesn't purchase," he said. "(The federal government) aimed at the right point."

Bankers also are optimistic; White said the home credit, which can be claimed on either 2008 or 2009 taxes, combined with lower home prices and interest rates, make the current market a good one for first-time buyers.

According to the Greater Springfield Board of Realtors, the average home sale price is just more than $139,000 in GSBOR's service area, which is concentrated in Greene, Christian and Webster counties. The interest rate for a 30-year, conventional fixed-rate mortgage was 5.18 percent as of March 10.

Possible downsides

MSU professor Nelson - who generally opposes HASP - is worried that much of the expected increase in home prices will be attributable to inflation, which he says is inevitable given the hundreds of billions the federal government is spending on the plan.

Last August, he said, the consumer price index hit an annualized growth rate of 14 percent. The growth did not continue, however, because of the drastic fall in energy prices through the fall and winter.

"But that was only eight months ago - if that happened then, it could happen now with all the money they're infusing into the market," Nelson said.

His theory is that government leaders are making up the rules for fixing the market as they go along.

"The government has to write its own rules as it goes, but it still needs market participation - they need bankers to do their banking and Realtors to sell their properties and people to buy the homes," he said. "Even if the government takes over the whole system, if no one wants to borrow to buy a home, there's nothing. They can't do anything to force people to buy or sell or borrow."

Andrews, too, had a few concerns about HASP, even though he said the overall plan is needed to re-energize markets. The plan is dependent on banks to open their lending practices and get money flowing again, but that is not guaranteed even with a federal capital infusion.

Nelson also worries that the average citizen is putting too much weight on housing numbers as an indicator of overall economic health.

"They say that since (housing) started the problem, it should pull us out of it, so people look at the housing numbers expecting those to pull the whole economy back up," Andrews said. "We need to fix the problem where it is - if it's jobs, find a way to add jobs; if it's banking, fix that. Housing will improve as a result of fixing those things, and not the other way around."

Proponents of the plan, however, including Andrews and White, say the positives of the government's assistance efforts far outweigh the potential drawbacks.

"We have to stabilize the market - we have to slow down foreclosures, and we have to put certainty back into the market," White said. "This plan addresses that."