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Real estate experts debate effectiveness of government money in housing

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Real estate experts debate effectiveness of government money in housing
By JEN LEBRON KUHNEY, The Daily Transcript
Tuesday, March 31, 2009
Federal and state governments have pumped nearly a trillion dollars into the economy with billions flowing into the housing market.
When seven local real estate experts gathered at The Daily Transcript offices last week, they discussed how this money will affect the local market.
Norm Miller, director of real estate academic programs at the University of San Diego, said inflation is inevitable based on principles of macroeconomics.
“Eventually we’re going to have inflation. Eventually we’re going to have higher interest rates and that’s going to lead to real estate being a good thing to own again,” he said.
However, Alan Gin, professor of economics at the University of San Diego, said the state of the current economy may be able to absorb the cash flowing in without showing signs of dramatic growth or inflation.
But San Diego State University real estate professor Mark Goldman said growth is not necessarily needed to sustain a vibrant real estate market.
Guy Asaro, president of McMillin Homes, said tax credits from federal and state governments has encouraged some buyers to purchase new homes. His company has sold six new homes at his price in the past two moths at one of his developments in South County.
“It’s certainly increased traffic, especially from the first-time buyers,” he said.
The problem is, though, that some interested buyers cannot get financing due to underwriting standards, Asaro added.
Dave McDonald, president of the California Association of Mortgage Brokers San Diego chapter, said one way to loosen underwriting guidelines is remove credit scores from the equation.
“To open up the market you have to get rid of credit scores,” he said. “They’ve never been a great predictor of whether someone can pay.”
No one at the roundtable voiced any agreement with McDonald except to say credit scores are not a “great” predictor but can still statistically predict whether someone can pay.
Additionally, McDonald said underwriting standards need to be loosened for the self-employed and for those who are owe more on their mortgages than their homes are currently worth.
It was generally agreed that, socially, “we have destigmatized people who have the ability to pay their mortgages but don’t because they feel they’re upside down,” Goldman said.
Additionally, Alan Nevin, director of economic research for MarketPointe Realty Advisors, said those who are late on payments have an easier time refinancing.
Goldman said while the first reaction to those who are delinquent on payments is that they are skirting their moral obligations, he said those obligations go far beyond the home purchaser.
“I think the loan universe as we know it today is an inverted pyramid and at the bottom of it, holding the whole thing up, we have the consumer,” he said.
Following the consumer is a myriad of people like the loan originators, the mortgage bankers, securitizers, credit rating agencies and then the investors who bought into bad loans.
“There was so much hunger for this crap paper and nobody cared,” Goldman said.
Now, like the companies the homebuyer is holding up, Goldman said the average consumer is waiting for a “handout from Uncle Sam” that is not coming.
HOPE Now was a program instituted to help troubled homeowners avoid foreclosure. But according to a report from CNNMoney.com, the program has only helped one homeowner avoid foreclosure so far.
Goldman said all the money Congress has put into these various programs has not been effective.
Some of the experts at the roundtable suggested it would have been better to let the housing industry work itself out.
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