Will Obama Plan Usher in a Housing Recovery?

February 2nd, 2012 by Editor

In his State of the Union address, President Obama laid out a Blueprint for an America Built to Last, calling for action to help responsible borrowers and support a housing market recovery. Yesterday he followed up that speech with some additional details, and the door and window industry weighed in on the plan.

The blueprint offers a wide range of tools to help homeowners, supporting middle-class families and the economy. These include:

Broad Based Refinancing to Help Responsible Borrowers Save an Average of $3,000 per Year: The President’s plan will provide borrowers who are current on their payments with an opportunity to refinance and take advantage of historically low interest rates, cutting through the red tape that prevents these borrowers from saving hundreds of dollars a month and thousands of dollars a year.

Rehabilitating Neighborhoods and Reducing Foreclosures: The Administration is expanding eligibility to reduce additional foreclosures, increasing incentives for modifications that help borrowers rebuild equity, and is proposing to put people back to work rehabilitating neighborhoods through Project Rebuild.

Under the proposal, borrowers with loans insured by Fannie Mae or Freddie Mac (i.e. GSE-insured loans) will have access to streamlined refinancing through the GSEs. Borrowers with standard non-GSE loans will have access to refinancing through a new program run through the FHA. For responsible borrowers, there will be no more barriers and no more excuses, according to the plan.

Richard Walker, president and CEO of the American Architectural Manufacturers Association, believes reducing foreclosures is a positive first step.

“Refinancing to a lower monthly mortgage payment would give homeowners extra cash for home remodeling projects,” says Walker. “During this recession, many people have considered remodeling a safer investment than the purchase of a new home. As the economy continues to stagnate and home prices continue to fall, however, homeowners are now becoming wary of investing in their homes.”

He also applauds another aspect of the plan.

“The announcement by the Federal Housing Finance Agency that it will sell foreclosed homes in order to turn them into rental properties has potential to also increase window sales and get people back to work,” he says. “Investors typically swoop up the opportunity to spruce up a home in order to charge more monthly rent. Touting energy efficiency is also as enticing to renters as it is to homeowners.”

The plan also aims to put people back to work rehabilitating homes, businesses and communities through Project Rebuild.

Consistent with a proposal he first put forward in the American Jobs Act, the President will propose in his Budget to invest $15 billion in a national effort to put construction workers on the job rehabilitating and refurbishing hundreds of thousands of vacant and foreclosed homes and businesses. Building on proven approaches to stabilizing neighborhoods with high concentrations of foreclosures – including those piloted through the Neighborhood Stabilization Program – Project Rebuild will bring in expertise and capital from the private sector, focus on commercial and residential property improvements, and expand innovative property solutions such as land banks.

In addition, the Budget will provide $1 billion in mandatory funding in 2013 for the Housing Trust Fund to finance the development, rehabilitation and preservation of affordable housing for extremely low income families. These approaches will not only create construction jobs but will help reduce blight and crime and stabilize housing prices in areas hardest hit by the housing crisis.

Officials at other industry associations, including the National Association of Home Builders (NAHB) and the National Lumber and Building Material Dealers Association (NLBMDA), believe the President’s plan is a great first step.

“The NLBMDA is pleased that the Administration is recognizing the critical role that the housing market will play in helping to revive the economy,” says NLBMDA president Michael O’Brien. “Incentives to increase refinancing and reduce the glut of foreclosures are important tools to help people stay in their home and maintain equity. We look forward to working with the Administration and Congress to craft a program that is achievable and can make an impact.”

Bob Nielsen, chairman of the NAHB and a home builder from Reno, Nev., also commended President Obama for “highlighting the vital role that housing plays in the U.S. economy, but urges that additional action is needed.”

“To create jobs and further stabilize housing and the economy, NAHB is also urging policymakers to end excessively tight lending standards that are preventing qualified borrowers from obtaining a mortgage and home builders from getting construction loans to build viable projects in communities that want and need them,” he says.

But at least one window dealer is not convinced a government-backed initiative is the way to go.

Scott Barr, steward, Southwest Exteriors, in San Antonio, Texas, admits he is not a proponent of government programs.

“I believe in small government and free enterprise and letting the markets work. I think there is always unintended consequences.”

He likens this proposal to the door and window tax credit which was good and moved sales forward but also created “a hangover effect.”

“You are doing things that get a short-term benefit and short-term result and there are long-term consequences that someone else will have to deal with. I am a beneficiary of short-term programs but philosophically against them.”

He hints that if the government continues on its current debt-laden path, “there is a day of reckoning coming and someone will have to deal with it.”

“The government has us on a path that is not sustainable,” he adds.

Walker, too, is worried about the financial implications of the proposal.

“Given the persistent gridlock in Washington, especially in this election year, it will be interesting to see how the latest housing stimulus plays in Congress, as the costs of these programs is substantial,” he says.

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