C.A.R Update on Economic Situation

Tuesday, Oct 28, 2008

Brought to you by the California Association of Realtors

Oct. 28, 2008

Dear C.A.R Member:

Much has happened since passage of the Emergency Economic Stabilization Act earlier this month. 

N.A.R has urged U.S Treasury Secretary Paulson to take advantage of the extensive experience of local commercial and residential real state professionals in the management and disposition of real property as the U.S Treasury Dept. implements the Troubled Asset Relief Program (TARP) as part of the Emergency Economic Stabilization Act.

Congress has held a number of hearings over the past few weeks looking into multiple factors that contributed to the current financial situation. Last week, Congress heard testimony from Securities and Exchange Commission Chairman Christopher Cox, Federal Reserve Board Greenspan, former U.S Treasury Secretary John Snow, and other leading players. The hearings are laying the groundwork to inform legislation expected to address regulatory reform of the finance and lending industries as well as safeguards to prevent a recurrence of the current financial crisis. It is our expectation that the legislation will be introduced early next year. 

Additional hearings are covering the implementation of a second stimulus package. As the U.S economy continues to struggle, politicians on both sides of the aisle are feeling pressure from their constituents, creating a strong incentive for Congress to pass meaningful legislation as the national elections near and the country heads into the holiday season. The Senate, House of Representatives, and the White House have stated their willingness to work through a lame-duck session to pass a second economic stimulus package prior to the end of the year.

While many ideas have been circulated, few, if any, appear certain to be included in a second stimulus package, according to C.A.R policy analysts.  Some of the ideas under discussion include: An additional round of stimulus checks; extending the temporary loan limit of $729,750 for Government Sponsored Enterprises (GSE) and Federal Housing Administration (FHA); infrastructure spending; financial aid for states; a temporary increase in block grants; and an extension of unemployment and welfare benefits. 

One important factor determining what, if anything, will be done during a lame-duck session is the outcome of the upcoming presidential election. Should the Democrats take the White House and secure a filibuster-proof majority in the Senate, they may choose to wait till after Jan. 20 before proposing or enacting legislation. Should the Republican nominee take the White House, Democrats may feel the Bush administration will be more willing to compromise in order to pass last-minute initiatives prior to leaving office. C.A.R and NAR will continue to strongly advocate for making permanent the $729,750 loan limit as part of any investigation that is forthcoming.

The Hope for Homeowners (H4H) initiative that was part of the July stimulus package began to be implemented Oct 1. The H4H program allows troubled homeowners to keep their home, while enabling lenders to receive a Federal Housing Administration (FHA) guarantee on the loans. Under terms of the voluntary program, lenders agree to refinance the existing mortgage at 90% of the current appraised value and assume the loss on the remaining balance; the new loan is an FHA guaranteed 30-yr, fixed-rate, fully amortized, fully documented loan; and the homeowner must forego a portion of the home's future appreciation to the FHA when it is sold. 

The FHA has posted a list of lenders participating in the HOPE for Homeowners program. When contacting the lenders, the FHA is strongly encouraging consumers to also contact their servicing lender and any subordinate lien holders as their participation is vital in order to refinance into a H4H mortgage. The program is voluntary and servicing lenders may offer different solutions for avoiding foreclosure. The FHA plans to update the list weekly on Fridays. The list is available HERE. 

C.A.R will continue to report additional news, useful information and analysis to you as the evolving situation warrants.

Sincerely,

William E. Brown

2008 President 

CALIFORNIA ASSOCIATION OF REALTORS

Emergency Economic Stabilization Act--Letter from C.A.R

Friday, October 03, 2008

Brought to you by the California Association of Realtors

Dear C.A.R Member;

Earlier today, the U.S House of Representatives approved the Emergency Economic Stabilization Act by a 263 to 171 vote. The legislation was quickly signed into law by President Bush, capping what has been a very tumultuous two weeks for the credit and financial markets.

This was a difficult decision for our elected representatives to make, especially given the abbreviated time period for review and debate that the gravity of the situation warranted. While passage of the Act should enable the credit markets and the U.S financial system to set the stage for their eventual recovery, this was only the first step in what will likely take weeks and even months to wend its way through the system before reaching Main Street. 

But it was an important first step. The health of the nation's housing market is critical to the financial well being of every household in the country, and is front and center here in California.

Here's what the legislation does:

Helps American families keep their homes by requiring the Treasury Dept. and any federal agency that owns or controls troubled mortgages to modify those mortgages wherever possible; this may include reducing the principal or interest rate; and extends till the end of 2012 the exclusion from federal income tax of mortgage debt forgiveness. 

Addresses the credit crisis by allowing financial institutions to immediately sell $250 billion in troubled assets to the U.S Treasury Department under the newly created Troubled Assets Relief Program (TARP). Another $100 billion would be made available upon the President's request.  Should the President deem it necessary, and with Congressional review, the Treasury Dept. may utilize the remaining $350 billion;

Protects taxpayers by allowing the Treasury Dept. to take an ownership stake in participating companies. In addition, if after five years TARP has incurred a net loss, the President must propose legislation that would force participating companies to reimburse the government to make up the difference;

Sets up an insurance program, funded by the financial industry, to guarantee companies' troubled assets, including mortgage-backed securities purchased prior to March 14 this year;

Curbs executive pay for companies utilizing TARP;

Sets up two oversight committees, a Financial Stability Board, and a congressional oversight panel, to which the Financial Stability Board would report;

Creates renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels; as well as continuing other tax breaks that were set to expire; and extends relief from the Alternative Minimum Tax (AMT by another year;

Allows the SEC to suspend the required mark-to-market accounting standards and orders a study to be done on the rule's impact on financial institutions;

Shields bank deposits by temporarily raising the FDIC insurance cap to $250,000 from $100,000; and temporarily increases the federal insurance level for credit union savings to $250,000, both till the end of 2009.

We're appreciative of the efforts of our congressional leaders in both houses as well as of our peers at NAR. Their efforts helped secure adequate protections for both consumers and taxpayers, as well as stricter oversight protocols than what were initially contained in the legislation. C.A.R will continue to study and report to you additional information and analysis through our weekly e-mail newsletters.

Sincerely,

William E. Brown

2008 President

California Association of Realtors