Homeowner's Blog

More Stimulus for Housing?

On August 29, Shaun Donovan, Secretary of Housing and Urban Development, said that the housing market's July was "worse than expected" and that the Administration may support a new homebuyer tax credit. His statement follows similar recent expressions of concern about the overall economy from other senior Obama Administration figures. They too made it clear that the Administration will step in with other economic stimulus measures to rescue a faltering U.S. economy if necessary. With continued signs of a possible double dip recession, among them the recent housing construction and resale data, the first question is whether additional economic stimulus is necessary. If the answer to the that is yes, then the next question is whether put the stimulus resources into housing, and if so in what form.

With U.S. unemployment stuck around 10%, a further erosion of the economy could be devastating. On the other hand, the bailout and stimulus funding approved by Congress at the request of Presidents Bush and Obama in recent years has resulted in a dramatic federal deficit increase that itself is posing a growing risk to the nation's long term economic stability. In fairness, those steps may have prevented an economic depression, but the net result is that we face a policy dilemma.


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Our Savings are a Little Safer Today

We applaud Congress for passing comprehensive financial services reform legislation. While the legislation is imperfect in the view of most proponents and opponents, until now there has been no new measure in place that would preclude another massive financial meltdown that could have caused another Great Depression. That alone is a significant step forward. It is far better than relying on the memory spans of the small number of senior corporate leaders whose decisions caused the meltdown from preventing its recurrence.

The outcome clearly reaffirms the analogy of the Congressional legislative process to the making of sausage. In the view of many, the legislation does not address all the problem areas. In the view of others much of it is unnecessary and/or harmful. There is probably some truth in both views. Clearly the legislation's effectiveness in many areas will depend on the process of developing the numerous implementing regulations, where the outcomes in each case can range from strong and effective new rules to unintended consequences, and/or a waste of everyone's time.

Based on the history of major reforms, we will probably see some of all three. The legislation will also be revisited many times both to address loopholes and overkill. Both lie in the eyes of the beholders, and will certainly be influenced public opinion regarding financial services sector practices after the regulations have been implemented. Nevertheless there is today less likelihood of a future financial services meltdown than there was yesterday. For that we should be grateful, and thank the sausage makers for all the time and effort they put into the process.

A Disappointing Development

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, is urging both to avoid participating in the Property Assessed Clean Energy (PACE) program. PACE lets homeowners borrow money from their local governments to finance the high upfront costs of energy-efficient upgrades. Local governments raise the money through the sale municipal bonds, and the homeowner's debt is secured by a lien on the home that is paid off first, before mortgage debt, in case of a foreclosure or bankruptcy. This development is unfortunate because PACE helps both homeowners and lenders. To the extent that home energy costs are reduced, homeowners have more money remaining to pay their mortgage. That in turn reduces the likelihood that homeowners will default on their mortgage payments.

Nevertheless, the Federal Housing Finance Agency has a point. Sometimes hoped-for energy savings don't fully materialize. Unfortunately some energy saving investments, such as solar panels, return far less in energy savings per dollar of investment compared to other alternatives, such as adding insulation to older homes that have little or none. It is understandable that the FHFA would not want to subrogate its mortgages to other debts, when many of those energy saving alternatives will leave the homeowner with less money for their mortgage after they have paid their PACE special tax assessment.


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Thousands of Homeowners to Get Millions in Refunds

In a June 7 settlement with the Federal Trade Commission, Bank of America agreed  to pay $108 million in refunds to hundreds of thousands of homeowners. Those homeowners who were charged excessive fees by Countrywide prior to its 2008 purchase by Bank of America. At its height Countrywide funded about 20% of all mortgages in the U.S. and serviced homeowners on 14 percent of all outstanding mortgages. Affected homeowners were charged inflated fees for property inspections, lawn mowing and other services after they defaulted on their loans. The homeowners were not provided the option of performing any of those services themselves or shopping for more competitive prices in order to reduce their debt. Countrywide's practices were the equivalent of kicking a helpless person while they were on the ground.

According to FTC Chairman Jon Leibowitz, 200,000 homeowners who defaulted on mortgages serviced by Countrywide may receive refunds under the settlement. This was an appropriate settlement, and should discourage similar gouging by mortgage lenders and servicers in the future. Eligible homeowners will receive instructions on how to apply for the refunds in coming months. More information is available at http://www.ftc.gov/countrywide.

Holding Financial Advisors To a Higher Standard

A section in an early version of the Senate's financial services reform bill would have imposed a fiduciary duty on all financial advisers. It has been replaced by language that would require a study to determine if the current standards are adequate. We believe that anyone providing individualized investment advice should bear a fiduciary duty toward their clients. As a result of the recent practices that brought on the current recession, many consumers no longer trust or respect companies in that sector. Restoring that trust is essential to a stable economy. 

A fiduciary duty requirement is not that onerous. Real estate brokers owe a fiduciary duty toward their toward their clients, as do attorneys and many other professionals. It's not that complicated or hard to do, nor have fiduciary duty obligations resulted in excessive numbers of lawsuits or other serious problems in other sectors.


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