Yesterday, February 18, 2009, the President revealed his housing recovery plan. He chose Arizona to make this speech since it is one of the states most affected by the current housing and foreclosure crisis. After analysis of this program it is evident very few people will be helped in our most affected markets, including Arizona.
After doing hours of research, I am sad to say the plan is disappointing to say the least. Looking at just two of the valley's many communities here are my findings.
Sun City Arizona, a retirement community, average sales price in 2006 = $224,414. In 2008 the average was $179,139, a 20% loss in value.
Surprise Arizona, a family community, average sales price in 2006 = $273,244. In 2008 the average was $$204,477, a 25% loss in value.
The Arizona Regional MLS reported decreases of up to 30% in overall.
Mr. Obama emphasize the plan was to help "responsible borrowers". After careful reading of the speech and further explanations on the White House blog site, it is obvious that "responsible borrowers" EXCLUDES:
VA (Our honored Vets aren't responsible?)
FHA ( A government sponsored program to broaden homeownership)
ALT-A
ACCESS TO REFINANCING:
This plan is available for "responsible borrowers" with a conventional, conforming loan and a property with an appraised value greater than the current mortgage value. The plan hopes to allow borrowers to take advantage of today's lower interest rate, resulting in lower monthly payments. It also allows borrowers to refinance with resulting loan-to-value ratios greater that 80%. It requires that the new loan and costs be no more than 105% of current market value.
The problem with this plan is that a conforming loan, the target of this plan, had a 20% down payment requirement. Valley home values have dropped 36% or more between 2005 and 2008. There is no way an average Phoenix area home will qualify under this plan.
HOMEOWNER STABILITY INITIATIVE
This plan seems to address the Alt-A and sub-prime loans of recent years. If the value of the home is lower than the mortgage balance, the borrower MAY be eligible for a government sponsored modification of that loan for FIVE years.
- The current lender must lower interest rate to the level that the borrower's debt payment is now 38% of income.
- The government and the current lender will SHARE further reduction to lower the resulting payment to 31% of income.
- If the borrower stays current during the five year period of this modification, the borrower will earn $1000/year credit to principal.
- After five years the payments will increase at a "moderate", rate, phase over an undetermined amount of time. Unsaid is how much is "moderate"?
The problem is this plan requires the participation of the current lender. Lenders have been notorious in failing to participate in modifications and workouts so far. This is one of the reasons why the project Hope has been such a dismal failure. Some carrot and stick must be applied to this program to make it work. Anything less makes this just a feel good measure.
Noticeably absent from the current proposals is any plan to encourage buyers to buy existing foreclosed properties. These properties must be absorbed before any meaningful recovery can occur.
I believe every incentive should be made available to first-time buyers to get them to buy these properties. This should include low down payment FHA loans, expedited FHA 203K (rehabilitation loans), tax incentives, just to name a few ideas.
Jim Little, Sun City REALTOR®