Wednesday, February 18, 2009

The President’s Housing Plan

The Lehmann Letter ®

President Obama today announced his housing-recovery plan. It provides mortgage lenders and servicers with incentives to modify mortgage-loan terms to help struggling homeowners avoid foreclosure. Will it work? We’ll see. The key question: Is it large enough and sufficiently drastic to substantially mitigate the wave of foreclosures?

Those who wanted more may be disappointed. They asked for: (1) A foreclosure moratorium that calls a halt to all foreclosures for a specified period of time. (2) A “cramdown” of loan terms to keep all those at risk of foreclosure in their homes. The cramdown could include principal reduction, interest-rate reduction and a longer loan term, or all of the above. (3) A federal bank-bailout to save harmless those banks that suffered cramdowns. These steps go beyond what the president requested and may be more than Congress would authorize.

In any event, all would agree the president’s plan goes well beyond the bank-sponsored programs now in place. These have accomplished little.

Meanwhile, the Census Bureau today announced that housing starts fell to 166,000 in January. Connect that dot to the chart below (it’s beneath the chart’s base line) and you will see that this slump is worse than all others since WWII.

Housing Starts

(Click on chart to enlarge)

(Recessions shaded)

Housing’s collapse is ground zero for the current economic crisis. The problem started here and must end here. Until this downward spiral stops, there can’t be much of a recovery.

Let’s hope the president’s plan is sufficiently robust to turn the corner.
(The chart was taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of economic indicators.)

© 2009 Michael B. Lehmann

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