New Stimulus Plan Misses Vital Housing Target Again
The forthcoming stimulus plan of about $775 billion being formulated by Congress consists primarily of $300 billion of tax cuts for the "middle class" ($500 for individuals and $1,000 for couples), and federal government-funded infrastructure projects (Senate Democrats to Revise Stimulus Proposal as Obama Plans 'Major' Speech on Bloomberg). But we already saw last year that cash handouts of $300 to $1000 don't do much for the economy (Economic Stimulus Act of 2008, passed 2/13/08, the law that also temporarily increased loan limits for Fannie, Freddie and FHA). Actually, consumers are saving probably at least double that with current energy prices compared to what they were last summer, and that has stopped the drastic economic collapse. Further, infrastructure spending projects are very diffuse economic stimulus that won't have near term impact, and their impact will be very uneven across the economy. In general, the proposed package includes nothing significant to directly address the housing, mortgage and general credit crises.
While legislators are going gaga over the proposed size of the stimulus package, $775 billion, it actually pales in comparison to the many tens of trillions of dollars of wealth that have disappeared from housing equity and stock market valuation. It simply won't do nearly enough to offset the dramatic negative wealth effect on the economy due to housing and the stock market. And it won't directly improve the status of those assets either. Homeowners and lenders will be left floundering with upside down loans, and subprime ARM holders will continue to struggle with piecemeal negotiations for modifications or go into foreclosure. Meanwhile millions of prime ARM holders who can't refinance will be going into interest rate resets over the next year, and that's another risky crapshoot. As far as we're concerned only a plan like the AllStreets Bailout Plan has a chance to stop the mortgage, housing, credit and economic crises.
According to the article on Bloomberg, "Senator Kent Conrad of North Dakota and Representative John Spratt of South Carolina, chairmen of their chambers’ budget committees, said they want to address the housing crisis. Conrad, who called housing a “dead weight on this economy,” proposed additional steps to reduce mortgage interest rates along with a temporary $7,500 tax credit for homebuyers." At least they realize that the housing situation is a big problem. However, their proposals don't do nearly enough. There was already a $7,500 tax credit (actually a loan, since it has to be recaptured with future taxes) for buying a foreclosued property in the 2008 economic stimulus act, and we saw how much good that did during 2008!
Housing related bills passed last year included:
H.R. 5140 Economic Stimulus Act of 2008, passed 2/13/08
H.R. 3221 The Housing and Economic Recovery Act of 2008 (7/30/08): created the Federal Housing Finance Agency, taking the authority of the Office of Federal Housing Enterprise Oversight, the Federal Home Loan Bank Board, and some functions of HUD; created the HOPE for Homeowners (the innefective FHA refinance program that was supposed to save millions from foreclosure, but depended on lenders voluntarily swallowing big losses on loan modifications), and included several FHA modernization provisions
H.R. 1424 The Emergency Economic Stabilization Act of 2008 (the TARP program) (10/3/08)
Unfortunately, none of thelegislation suspended foreclousures, forced immediate modification of subprime ARMs, relieved any excess mortgage debt, or stimulated the housing market in any significant way. Congress either has no clue yet how to solve the interralated crises, or it is studiously turning a blind eye for some reason.
While legislators are going gaga over the proposed size of the stimulus package, $775 billion, it actually pales in comparison to the many tens of trillions of dollars of wealth that have disappeared from housing equity and stock market valuation. It simply won't do nearly enough to offset the dramatic negative wealth effect on the economy due to housing and the stock market. And it won't directly improve the status of those assets either. Homeowners and lenders will be left floundering with upside down loans, and subprime ARM holders will continue to struggle with piecemeal negotiations for modifications or go into foreclosure. Meanwhile millions of prime ARM holders who can't refinance will be going into interest rate resets over the next year, and that's another risky crapshoot. As far as we're concerned only a plan like the AllStreets Bailout Plan has a chance to stop the mortgage, housing, credit and economic crises.
According to the article on Bloomberg, "Senator Kent Conrad of North Dakota and Representative John Spratt of South Carolina, chairmen of their chambers’ budget committees, said they want to address the housing crisis. Conrad, who called housing a “dead weight on this economy,” proposed additional steps to reduce mortgage interest rates along with a temporary $7,500 tax credit for homebuyers." At least they realize that the housing situation is a big problem. However, their proposals don't do nearly enough. There was already a $7,500 tax credit (actually a loan, since it has to be recaptured with future taxes) for buying a foreclosued property in the 2008 economic stimulus act, and we saw how much good that did during 2008!
Housing related bills passed last year included:
H.R. 5140 Economic Stimulus Act of 2008, passed 2/13/08
H.R. 3221 The Housing and Economic Recovery Act of 2008 (7/30/08): created the Federal Housing Finance Agency, taking the authority of the Office of Federal Housing Enterprise Oversight, the Federal Home Loan Bank Board, and some functions of HUD; created the HOPE for Homeowners (the innefective FHA refinance program that was supposed to save millions from foreclosure, but depended on lenders voluntarily swallowing big losses on loan modifications), and included several FHA modernization provisions
H.R. 1424 The Emergency Economic Stabilization Act of 2008 (the TARP program) (10/3/08)
Unfortunately, none of thelegislation suspended foreclousures, forced immediate modification of subprime ARMs, relieved any excess mortgage debt, or stimulated the housing market in any significant way. Congress either has no clue yet how to solve the interralated crises, or it is studiously turning a blind eye for some reason.
Posted by The Mortgage News at 1/7/2009 9:10 PM 
Categories: Credit Crisis,AllStreets Bailout Plan,economic stimulus,subprime ARM,foreclosure crisis,Wall Street bailout,Subprime Loans,ARM adjustment,HOPE for Homeowners,Mortgage Legislation,mortgage modification,government bailouts,TARP funds,mortgage crisis,upside-down properties,loan limits,adjustable rate mortgages
Categories: Credit Crisis,AllStreets Bailout Plan,economic stimulus,subprime ARM,foreclosure crisis,Wall Street bailout,Subprime Loans,ARM adjustment,HOPE for Homeowners,Mortgage Legislation,mortgage modification,government bailouts,TARP funds,mortgage crisis,upside-down properties,loan limits,adjustable rate mortgages
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