Executive order to alter HARP
President Obama announced today what is being dubbed the “we can’t wait plan,” introducing the next phase of the Home Affordable Refinance Program (HARP), altering the current program without Congressional approval, saying that “we can’t wait.” With persistent instability in a struggling housing market, two main camps have formed- the “let the market tank and rebuild itself naturally” camp versus the “government must help homeowners keep their houses,” both of which are unrelenting.
The President’s Jobs Act has not been quite the home run some may have anticipated, and without stability in the jobs market, there will be no stability in the housing market, therefore Obama is being pressured to make moves to stabilize housing and his most current move is to amend HARP through an executive order.
Many support the new HARP plan while critics poke holes in the plan that aims to strengthen the housing sector.
The President is changing HARP to help homeowners that are current (and owe more on their mortgage than their home is worth) to refinance their mortgage to take advantage of the historically low mortgage rates. Prior to this new plan, HARP was restricted to borrowers whose mortgages were less than 25 percent over value.
Since the spring of 2009, HARP has only helped 822,000 borrowers despite the original promise of helping five million homeowners. The Administration says the new plan will help one million borrowers, while some economists say it could make up to 1.6 million eligible for assistance. Critics remain skeptical given HARP’s track record alongside the abysmal performance of other government programs for housing like HAMP.
Details of the new phase of HARP
The new plan will eliminate fees and if an automated valuation model (AVM) from Fannie Mae or Freddie Mac is available, no new appraisal will be required, which raises red flags for many in the industry. Additionally, loan amounts must top 80 percent of its current market value (which is determined by Fannie Mae or Freddie Mac).
The effort does have strong bipartisan support, however, noting that it is a legitimate effort to help homeowners who are actually paying their mortgages. The new plan applies only to borrowers who have not made a late payment in the last six months and cannot have made more than one late payment in the last 12 months.
The current Administration says the average savings per year will be $2,500 per household, although Moody’s notes that on a $150,000 loan, the savings will average $1,600. Some are calling this an economic stimulus package, theorizing that with homeowners saving hundreds of dollars each month, they will put that money back into the economy in the form of retail and similar spending.
This executive order extends HARP out 18 months to December 31, 2013, but what most traditional news outlets have missed is that all of these new adjustments only apply to loans backed by Fannie Mae or Freddie Mac that were taken prior to May 31, 2009.
Marginal aide for the housing sector
Economic stimulus or not, many point out that the amount of homeowners that are eligible for help under this new plan is marginal at best given that over 3.5 million homeowners are seriously delinquent, more than four months behind. HARP does not address this issue which some call the most critical piece of the housing puzzle.
Banks that have been servicing government programs like HARP and HAMP have complained that the risk is too high, the red tape too deep, and outside investigations have found servicers to be careless (frequently losing applications and paperwork) and difficult (altering internal rules as they go along). This plan reduces the bank’s liability to repurchase the loans if borrowers default, which supporters say will incentivize the banks to participate in the non-mandatory program. Critics note that if banks aren’t liable for defaults, the taxpayers are, which puts America back in the same sticky situation the Administration is allegedly attempting to repair.
MBA and NAMB optimistic, NAHB cautiously so
Various industry associations have weighed in on Obama’s announcement, however, as of publication, the National Association of Realtors (NAR) has not. It seems that the lending associations are wildly in support of the measures while home builders (and we suspect other industry trade associations that are consumer-oriented) are more cautious with their optimism, mostly noting that something is better than nothing.
“The mortgage industry welcomes these changes designed to help more underwater borrowers who are current on their mortgages refinance at today’s historically low interest rates,” said David H. Stevens, president and chief executive officer of the Mortgage Bankers Association (MBA). “Not only will these changes allow more borrowers to qualify, but they will streamline the process and reduce the cost to borrowers and should lessen risk for Fannie Mae and Freddie Mac. Lenders are particularly gratified that the refinements will provide relief from some representations and warranties that lenders face when originating new loans. These changes alone should encourage lenders to more actively participate in HARP.”
“These enhancements will not only help responsible homeowners who have been unable to refinance because the equity in their home has disappeared, but it will also help spur the economy by allowing homeowners to reduce their monthly payment, thus allowing homeowners to spend the extra savings on much-need household expenses to spur the economy,” said National Association of Mortgage Brokers (NAMB) President Michael D’Alonzo. “NAMB applauds the Obama Administration and the FHFA for realizing this program had limited success to the consumer and making the necessary changes so that the average American homeowner who pays their mortgage on time but is underwater can benefit.”
Bob Nielsen, chairman of the National Association of Home Builders (NAHB) said, “”However, for the many families who have fallen behind in their payments because of the weak job market, the changes to HARP will have no benefit. HARP is only open to mortgage borrowers who have remained current with their payments. Clearly, additional policy initiatives are urgently needed to prevent foreclosures and deal with the inventory of foreclosed homes. In addition, it is essential to address overly restrictive mortgage lending standards, inappropriate credit limitations on home builders and a broken appraisal system that is contributing to housing price instability. All of these factors are detrimental to the full-scale housing recovery we need to rally consumers and get a disappointing economic recovery moving forward.”
Is the real estate industry endorsing Carson’s nomination to HUD?
(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?
NAR strongly backs Dr. Carson’s nomination
When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”
At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?
The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.
In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…
Job openings hit 14-year high, signaling economic improvement
The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.
Job openings hit a high point
To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.
The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.
Good news, bad news, depending on your profession
That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.
Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.
If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.
If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.
Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.
Gas prices are down, so are gas taxes about to go up?
Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.
Gas taxes and your bottom line
Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.
Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.
Supporters and opponents are polar opposites
Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.
Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.
While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.
The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.
Is a gas tax politically plausible?
Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”
Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”
Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.
Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.
“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”
Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.
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Ladies and gentlemen, the U.S. National Anthem
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