Housing Rescue Next on the Agenda

Man Evicted: Photo Courtesy of Marketplace

The nearly $800 billion economic stimulus bill, which will become law on Tuesday with the President’s signature in Denver, contains some provisions to stimulate the housing market. Most notable is the first-time home buyer tax credit. Another important provision is the extension through 2009 of FHA and Fannie Mae loan limits set in 2008. Incentives to retro-fit homes and commercial buildings to improve energy-efficiency will prop up the ailing construction industry. But the fundamental problems with housing have yet to be addressed.

The President will begin the conversation about solving the housing crisis on Wednesday in Phoenix – perhaps the city hit hardest by foreclosures of any in the U.S. (Arizona ranks third among states in foreclosures, behind California and Florida.) At the peak of the housing market, Phoenix’s home prices skyrocketed more than 40% in one year. The drop in prices as been commensurate. More critically, foreclosures now dominant the Phoenix market and have created empty homes that in some cases have created health hazards from untended swimming pools. Let's not get our hopes up for a speedy recovery. As Economist Karl Case said in Time Magazine this week: "Let's not delude ourselves into thinking we're driving a speedboat when we are driving a tanker."

Foreclosures have been delayed in the case of government-insured loans and many of the larger banks have followed the government’s lead. Still renegotiations for stressed homeowners go slowly and are frustrating – short sales are not happening as they should. “It's really the servicers of these privately securitized mortgages, which are only 15 percent of the mortgages outstanding, but more than half of the defaults. Those are the ones that are the problem and it's become clear that existing measures haven't worked and we need much stronger actions,” according to Columbia University Real Estate Professor Chris Mayer, who was interviewed on Marketplace, broadcast on Flagstaff’s KNAU radio last Friday afternoon.

Wednesday morning, President Obama will speak at Dobson High School in Phoenix, where he will outline his plan for housing recovery and  rescue of homeowners facing foreclosure. Stay tuned.