Congress passed a housing rescue bill Saturday aimed at sparing 400,000 struggling homeowners from forec
losure. President Bush is expected to sign the Bill into law early this week.
The question on everyone’s mind nationally is “will the plan outlined in the Rescue legislation work” to help the struggling economy and support the ailing real estate market?
We are paying attention closely here in Phoenix where we are overrun with foreclosures in such prominent towns as Fountain Hills, Scottsdale, Peoria, Glendale and Mesa; even Paradise Valley has REO listings.
I believe that there is no silver bullet that will be a complete quick fix.
However, there is precedent and reason to be optimistic.
Let me give you some background.
In last Sunday’s New York Times writer, Amy Schoenfeld discussed the role of American Debt and the American Burden that has come since the first consumer loans took form in the 1920′s.
Ms. Schoenfeld, walks us through a previous time in history where ….
for the first time, starting in the 1920′s banks offered 3-year to 5-year mortgages with lump sum (balloon loans) payments at the end of the loan.
Does this at all sound like short term ARM‘s (Adjustable rate mortgages) of the last 10 years?
Americans then, like Americans now, took on debt during the Great Depression and many leaders called on debt as a key to recovery.
Does this sound like the lowering of interest rates rapidly starting in 2001 after 9/11 to add consumer confidence to a shaken economy?
However, refinancing of theses loans was nearly impossible as home prices dropped.
Does this sound similar to the inability of today’s homeowners to re-finance into better loans to ride out the housing downturn?
According to one estimate nearly half of urban mortgages are delinquent in 1934.
Today, we have as many as 3 million Americans who may face foreclosure by several estimates.
The government acted quickly to make long-term loans the industry standard and provided for the refinancing of one million delinquent loans and offered insurance on loans.
Does this sound eerily similar to the Housing Rescue Act that the Senate just passed ?
Next, right after WWII, Americans buy homes with government insured mortgages.
Will the outcome of the Housing Rescue Act of 2008 be the same renewed consumer confidence and economic recovery that we saw in the 1940′s?
In 1951, 53% of homeowners have no mortgage debt.
This outcome may be a bit far reaching as we are a now a Country and economy built on debt. (According to the New York Times, Americans carry $2.56 Trillion in consumer debt, up 22 percent since 2000.)
However, the historical parallels are compelling and are difficult to ignore.
We may not reach the levels of 1951. However, if the Housing Rescue bill works we are well on the way of putting words like ‘recession’ in our rear-view mirror and are heading towards a recovery.
History tells us we have reason to be optimistic; dare I say ‘confident’?
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Copyright © 2008 By James Wexler, All Rights Reserved. *Will the Housing Rescue Bill work ?*
Contact James Wexler (480) 221-8080 for all your Phoenix | Scottsdale area Real Estate needs
Interesting article James, thanks for providing the parallels. I’m also one of the many who aren’t convinced that this rescue plan is the best way to go, but something definitely has to be done. Guess we’ll see how this plays out in the coming months!
i think this will work. however, may take some time to take effect. The downside is that I would like to see the FED cut rates. However, I dont think they will make a move either way until they see the outcome of the new piece of legislation.
Sorry, Jim, a little too late, and not a well crafted piece of legistation.
This reminds me of the parable of an animal designed by committee.
There are really only two ways to approach the mortgage situation.
First, allow a ‘breathing’ period. That is keep teaser rates active (and
affordable for an additional year). In line with this allow those facing
imminent eviction, within 60 days, a stay of 4 months.
Second, let the legal foreclosers proceed. Many of these are the result
of speculation, and should be cut loose. Others are the result of personal
spending that has to be addressed, but not by taxpayers.
In any case people who rented their homes are the biggest losers…
They do not enjoy tax advantages, or bailout.
The other disturbing note are the homebuilders and Realtors who want
the government to resurrect their industry. Sorry, not our role.