Cities to Benefit from Obama’s Housing Plan
2009/03/21, 10:02 am
Filed under: Economy | Tags: , ,

In these 10 places, mortgage relief could be efficient economic stimulus.

A check for $75 billion only goes so far. That’s the grim reality staring down President Obama and his Homeowner Stability Initiative, designed to rescue the housing market (and the economy in general).

Home values in urban areas have fallen an average of 27% since the boom peaked in July 2006, and many Americans who now owe more than their houses are worth are simply walking away from them. Those few who will make good on their payments as rates rise find there’s little left to spend on cars or luxuries–a major drag on any economic recovery since spending fuels employment. Meanwhile, skyrocketing unemployment sends countless others

In other words, Obama’s plan can’t be a one-size-fits-all rescue.

In Depth: Cities To Benefit From Obama’s Housing Plan

But there’s good news for those who are eager to walk away or are barely managing to make ends meet, particularly in Jacksonville, Fla., Memphis, Tenn., and Minneapolis, Minn. The Homeowner Stability Initiative will provide refinancing on any Fannie- or Freddie-held primary mortgage on an owner-occupied house whose value is at least as much as the original purchase price.

Homeowners in these cities are likely to benefit because their real estate markets didn’t boom and bust as badly as in overbuilt, overhyped places like Miami and Tampa, Fla., where home values have fallen by nearly half since the bubble burst. Or, in the case of Detroit, where saving homeowners won’t correct larger, longstanding systemic problems.

“That train has already left,” says Andres Carbacho Burgos, an economist with Moody’s, of those cities’ housing crises. But in other cities, Obama’s plan just might help homeowners keep the roofs over their heads.

Behind the Numbers
To determine what cities are most likely to benefit from Obama’s initiative, Forbes used data from First American Core Logic and the National Association of Realtors on the nation’s 50 largest metropolitan statistical areas. Tracking the fall in home prices from their most recent peak, current foreclosure and delinquency rates–and the change in each statistic from the previous year–we gave each city a rank for each metric and a composite rank for overall performance.

Cities at the top of the list, such as Tampa, Phoenix, Detroit and Los Angeles, aren’t likely to fit the Obama plan because of negative equity, a surplus of second homes and the limited size of a separate tax incentive ($8,000 credit for first-time purchasers whose income is $150,000 or less), as well as broader structural issues.

Instead, the plan is more likely to benefit homeowners in the second tier of cities in our ranking–places where the housing situation is deteriorating, but still salvageable. Prices in these towns haven’t hit rock bottom yet and foreclosures haven’t peaked. Government aid could help the market find bottom. Delinquencies are on the rise, too, but nowhere near the double-digit rates seen in Orlando, Fla., or Las Vegas; that suggests homeowners want to stay in their houses–which means Uncle Sam might be able to help.

Take Jacksonville, Fla. Year-over-year changes in foreclosure and delinquency rates here are the third-worst nationwide. Wight Gregor, the city’s housing department director, estimates that foreclosures were up 14% in January alone. But home prices have fallen 13.9% since 2007, less than the average. A fairly modest refinancing might be enough to entice owners here to stay since they still have considerable equity at stake. The plan would especially help those who are making their payments yet squeezing on other things, thereby dragging down overall consumption, Gregor says.

Essentially, Gregor wants to treat mortgage refinancing as a backdoor rebate check. It might work: The Florida Housing Coalition estimates communities like Jacksonville could offer $6 of economic activity for every $1 of mortgage relief.

Burgos has a similar perspective, but believes the tax credit, in concert with Obama’s plan, will stimulate business investment in places like Cleveland and Providence, R.I. These industrial towns have struggled due to a shrinking manufacturing sector, which has reduced demand for new homes. Stimulating construction, Burgos argues, will be the first step toward rescuing these cities’ homeowners–and their economies.

A Different Plan: Boost Confidence
Pat Lashinsky, CEO of Emeryville, Calif.-based company ZipRealty (nasdaq: ZIPR news people ), has a different approach: Boost homebuyer confidence, which acts as a driver of consumer spending overall.

Homebuyer confidence is at dismal levels these days, with more than half of all consumers surveyed by ZipRealty saying the Obama plan has no impact on their desire to spend. Lashinsky says the best way to lift confidence is by targeting “Upper Main Street”–midsize, middle-American cities like Memphis, Tenn., and Minneapolis, Minn.–though Cleveland and Jacksonville make his list, too.

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“These are the most stable populations in the country, where there are large numbers of first-time homebuyers,” says Lashinsky. In these places, he says, the tax credit is key. “$8,000 can make a real difference relative to the price of a home.”

Lashinsky also likes the potential of Washington, D.C. The recession hasn’t hit the capital as badly as elsewhere–unemployment is only 5%, compared with 8% nationwide–because of government jobs. But the real estate sector is taking a severe hit: the District ranks in the top five for delinquencies. Plus, Lashinsky points out, boosting the real estate market here would have a spillover effect into both Maryland and Virginia.

Even where homeowners stand to benefit only slightly, however, the Obama plan is no magic bullet, experts say. Yet something is better than nothing.

“If we have this plan and nothing else, we won’t turn the city around,” says Gregor. “But it’s a good start.”


Play by Play of Obama’s stimulus speech
2009/02/19, 8:33 pm
Filed under: 1 | Tags: , , , ,

Here’s a play-by-play of the speech:
This is a “crisis unlike any we’ve ever known.” Families can’t afford to leave, but can’t afford to stay.

6 million homes in foreclosure or at risk of foreclosure across the US.
Study in Chicago found that a foreclosed home reduces the price of nearby homes by as much as 9%
Costs associated to local government for a foreclosure can be up to $20,000
Created a credit crisis – we all pay a price.
Plan will help between 7-9M families restructure&refinance their mortgages to avoid foreclosure. It helps them, and their neighbors by preserving neighborhood home prices.

Here’s how the plan will work:
1. Make it possible for 4-5M Freddie Mac&Fannie Mae loan holders to:

refinance at lower rates
changes the policy that Fannie and Freddie are generally not permitted to guarantee refinancing for mortgages valued at more than 80 percent of the home’s worth
enable families with higher loan rates who may be underwater to refinance
Although Fannie & Freddie would take in less money from loans, they would lose less due to foreclosures
2. Create new incentives so that lenders can work with borrowers to modify the terms of sub-prime loans at risk of default and foreclosure

sub-prime loans are only 12% of all mortgages, but about 50% of all foreclosures.
establishes clear guidelines for mortgage industry that will encourage lenders to modify mortgages on primary residences
lenders wanting to receive financial assistance from the government and modify home mortgages must meet these guidelines, which will be in place by March 4
reduced payments must be no more than 31% of homeowner’s income
3. Take major steps to keep mortgage rates low for millions of middle-class families looking to secure new mortgages

Treasury and Federal Reserve will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to ensure stability and liquidity.
Treasury will provide up to $200 billion in capital to ensure that Fannie Mae and Freddie Mac can continue to stabilize markets and hold mortgage rates down
will also work with state housing finance authorities
4. Pursue wide range of reforms to help families stay in home

Continue support reforming our bankruptcy rules to allow judges to reduce home mortgages on primary residences to their fair market value, as long as borrowers pay their debts accordingly
As part of the stimulus plan, award $2 billion in competitive grants to communities bringing people together and testing new and innovative ways to prevent foreclosures.