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Commentary on the Housing Market as of February 2009
by Peter L. Zachary, MAI, MRICS

There may be some good news for consumers and homeowners. The NY Times on January 3, 2009 had a lead article in their Business Day Section entitles "Willing To Deal". It stated "As Borrowers Go Broke, Lenders Take Whatever They Can Get". "Banks and credit card companies are bracing for a wave of defaults on credit card debt in early 2009 and they are vying with each other to get paid back first." The article continues: "borrowers who are pushed to the brink are being offered deals that forgive 20 to 70% percent of their debt" and on January 9, 2009, The Times reported: "Homeowner Relief Bill Wins Backer - Citigroup's Support May Assist Passage." As you may remember, the Homeowner Relief Bill, which has been discussed for the past six months could allow bankruptcy judges to adjust the principal payments or interest rates on mortgages. Well, apparently Citigroup who is receiving more than $300 billion in bailout assistance is willing to drop its opposition to this bill. This is the first bank to drop its opposition. Other banks like Bank of America, JP Morgan Chase and Wells Fargo have fought to block the so called "cram down" legislation last year. The article continues that Senator Christopher J. Dodd stated: "If you are looking at a way to get to the bottom of the economic problems in our country, this is the cause of the economic problems. It is the housing foreclosure problem we've got to address that. Senator Charles Schumer said that he is in contact with other large banks and he expected they would soon announce their support or at least drop their opposition to the plan. "Citigroup's action has broken the dam", he said.

The same January 9, 2009 issue of the New York Times has an article on page 3 of the Business Day section entitled "Treasury's Oversight of Bailout is "Faulted". The article states "In a report scheduled to be released on Friday, the Congressional panel overseeing the $700 billion bailout has expressed concern about the effectiveness and execution of the rescue plan. A draft report obtained by the New York Times criticized the Treasury Department for its "Shifting explanations" about the underlying purpose of the bailout, its failure to answer many of the panels, questions and its failure to require financial institutions receiving bailout money to fully account for how they are using the public's money." "The recent refusal of certain private institutions to provide any accounting of how they are using taxpayers' money undermines public confidence" the draft of the report said. "For Treasury to advance funds to these institutions without requiring more transparency further erodes the very confidence Treasury seeks to restore".

The 45 page report also asserted that the Treasury, in defiance of what the panel claimed was Congress's clear intent when it passed the bailout bill in October has taken "no steps to use any of this money to alleviate the foreclosure crisis. The report concludes that the Treasury has injected $177.5 billion in bailout money into 214 financial institutions in 40 states and Puerto Rico. Do you remember what I said in my January 1, 2009 Commentary? I said the panel's main source of influence is that it will have the ear of lawmakers who can tighten the bailout purse strings or re-write its character.

The most important news this month is President Obama's stimulus plan. But first let me recap some headlines:

  • "Broad Job Losses As Companies See Sharp Downturn"
    New York Times - January 10, 2009

  • "Deeper Hole For Banks - Need Keeps Growing For Funds In The Bailout"
    New York Times - January 14, 2009

  • "Senate Releases Second Portion Of Bailout Fund - Victory For Obama"
    New York Times - January 16, 2009

  • "Layoffs Spread To More Sectors Of The Economy"
    New York Times - January 27, 2009

  • "Stimulus Plan Offers Road To Retooling Social Policy"
    New York Times - January 28, 2009

The Republicans under President Bush in his last months of office had their chance to save the weakening economy with the $700 billion bailout. Now the Democrats under President Obama have their chance. On January 29, 2009, the New York Times headline was "House Approves $819 Billion Plan for Economic Aid - Bill Passes With No GOP Support". The article states: "Without a single Republican vote, President Obama won House Approval on Wednesday for an $819 billion economic recovery plan as Congressional Democrats sought to temper their own differences, over the enormous package of tax cuts and spending. The bill provides the following:

  • Tax Cuts Totaling:
    • $275 Billion

  • Aids To States:
    • $87 billion to Medicaid
    • $79 billion to state fiscal stabilization fund

  • Infrastructure:
    • $30 billion for highway construction and tens of billions for other transportation projects

  • Education, Healthcare and Alternative Energy:
    • $140 billion

  • Automatic Stabilizers:
    • $20 billion over 5 years on food stamps
    • $43 billion over 2 years on unemployment benefits

Critics say that only the tax cuts of $275 billion or roughly 1/3 of the total will stimulate the economy. The balance they say is just a giveaway.

This bill, approved by the House is not law yet. It has to be approved by the Senate so its final shape and form may be different.

Someone Neil Cavuto of Fox Business interviewed said a trillion dollars is the total income tax collected by the government. That indeed would be a stimulus to the economy, but the idea is too simple for the politicians in Washington to understand. They also cannot get their hands on any of that money. Do I sound cynical? Who can't be?

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