Concerted Effort Urged to End Housing Credit Crunch
In its centerpiece resolution adopted at the recent fall board of directors meeting in Seattle, NAHB urged the national leadership in Washington to recognize the seriousness of the housing credit crunch and to take steps to calm and stabilize financial markets and to restore confidence and liquidity to the nation’s mortgage markets.
The NAHB board also called on Congress, the Administration and financial institution regulators to work with the housing and lending communities to develop solutions to subprime foreclosure problems without unduly restricting credit to the boarder housing market.
“To put it bluntly, this credit crunch has pushed us into the midst of the deepest, broadest and most serious housing crisis since the 1980s,” NAHB President Brian Catalde told board members.”
In its resolution, the board also called on:
The Federal Reserve Board to cut the federal funds rate on or before its Sept. 18 meeting, eliminate the penalty for borrowing at the discount window and, if warranted, make additional rate cuts in the future to stabilize financial markets and increase liquidity in credit markets
The Office of Federal Housing Enterprise Oversight (OFHEO) to temporarily lift the portfolio limits on Fannie Mae and Freddie Mac to allow these housing government-sponsored enterprises (GSEs) to purchase and hold single-family and multifamily loans and mortgage-backed securities from institutions needing additional liquidity
- Congress to adopt legislation already passed by the House of Representatives that would strengthen regulatory oversight of Fannie Mae and Freddie Mac and that would allow these enterprises to buy loans that exceed the conforming loan limits in high-cost markets
- Congress to adopt pending legislation that would give the Federal Housing Administration more flexibility to lower minimum downpayment requirements, raise the mortgage ceilings, simplify the condo insurance program and price insurance more closely to its risk
- The Department of Housing and Urban Development to promptly implement regulatory changes that would allow FHA borrowers with adjustable-rate loans who have fallen behind on their monthly payments to refinance with fixed-rate FHA mortgages
- Fannie Mae and Freddie Mac to purchase or refinance subprime mortgages that had or have sufficient documentation and ratings to qualify for prime or Alt-A status
- Congress to modify Internal Revenue Code Section 108 to exclude from gross income any discharge of indebtedness associated with a home owner's mortgage.
While the problem in today’s mortgage market is centered in the subprime and jumbo loan markets, Catalde said that the market for conforming loans (mortgages up to $417,000 that can be purchased by Fannie Mae and Freddie Mac) is operating normally.
“The Fed, Congress, the Administration and financial institution regulators need to work with the housing and lending communities to help subprime borrowers who are looking to refinance in order to avoid foreclosure,” said Catalde. “It is also important to shore up the jumbo loan market, where the availability of these loans is limited and very expensive, creating serious problems for high-cost housing markets such as California, the Northeast and many large metropolitan areas."
Spiraling Out of Control
“In 2008, we are facing a potential 2 million foreclosures,” Catalde said, and those units would come back into the inventory at reduced prices on top of the current inventory overhang.
“At the same time, lenders have been tightening their lending standards,” he said. “In fact, they are overreacting and overtightening. A combination of a lack of confidence by consumers, lending institutions and investors has resulted in this serious mortgage credit crunch where money for loans is in short supply and inventory is rising."
“Ladies and gentlemen, this situation has now spiraled out of control,” he said. “We cannot — and we will not — allow this situation to continue unchecked.”
With the housing recession “still deepening” as the industry deals with “unique problems in the housing finance system,” forecasting housing activity in the year ahead has grown difficult and “there are troublesome signs” about the economy’s expansion process, which is now in its sixth consecutive year,” NAHB Chief Economist David Seiders told the board.
On Sept. 7, the day just prior to the board meeting, the government reported small net job losses for August, the first decline since 2003. If another decline is reported for September, Seiders said, “the Federal Reserve will pull out all the stops,” because two consecutive downward months for employment would signal the onset of recession.
“The Fed has a lot of room to move on the downside if the economy gets into trouble,” he said.