There is near universal agreement in the United States that the root of our current economic crisis is an anemic housing market. Housing starts have declined to a 17-year low, foreclosure rates have increased exponentially across the country, and leading economists predict that home prices will continue dropping well in to 2009.
President-elect Barack Obama has stated his intent to avoid the “cycle of bubble and bust” that has afflicted our economy and to enact measures that steady the housing market. He is right to do so, but the devil is in the details. Having sat across the table from scores of creditworthy home buyers the last 10 years, I have gotten a sense of what policies can work if implemented responsibly. Here are four proposals our next president would be wise to consider.
First, provide a 5 percent interest rate on 30-year mortgages held by Fannie Mae, Freddie Mac and the Federal Housing Administration. These mortgages would have traditional, documented underwriting guidelines and would be made available for one year to encourage creditworthy home buyers to enter the market. Current holders of adjustable rate mortgages would also be eligible to refinance into these mortgages, but would not have access to the home’s equity. The costs associated with resetting mortgages this year have driven tens of thousands of homeowners to foreclosure. Allowing other homeowners to refinance will instill a degree of stability into the market that has been missing for too long.
Second, reauthorize and reform down payment assistance programs funded in part by sellers, commonly known as DPA. These programs helped one million creditworthy families and individuals become homeowners before they expired in October. That includes 13,000 Maryland homeowners. The next president can insist on tougher credit requirements for applicants for DPA and provide incentives for home buyers who make their monthly mortgage payments on time. Doing so will bring approximately 300,000 creditworthy home buyers back to the market each year nationwide.
Third, incentivize the purchase of foreclosed homes. In addition to a 5 percent interest rate on 30-year mortgages, the next president should propose tax benefits for home buyers who purchase and refurbish a foreclosed home. Home buyers will hardly be the only beneficiaries. Home goods stores, retailers, landscapers, plumbers, electrical technicians and cash strapped local governments are just a few of those who would benefit from the new stream of revenue. In addition, millions of homeowners in neighborhoods with foreclosed homes would no longer see their home’s value suffer from the blight of abandoned structures nearby.
Fourth, the next president must lead an unprecedented home buyer education initiative. Research shows that home buyers who participate in education courses are far less likely to foreclose on their home and more likely to increase their purchasing power. There is no better way to build on this argument than through the president’s bully pulpit. Herein lies a golden opportunity for the president-elect to unite industry, government and nonprofits to increase the pool of educated and informed home buyers in America. After all, an educated home buyer is a responsible home buyer.
With the president-elect’s backing, we can make such sorely needed initiatives a reality. Our housing market and our economy depend on it.
Ann Ashburn is president of AmeriDream Inc. of Gaithersburg, a leading provider of housing-related programs to low- and moderate-income individuals and families.
