NMHC's Doug Bibby

Did Bush Botch the Bailout?

Our beleaguered president didn’t fare so well in last week’s Quick Poll, gauging the industry’s reaction to his proposed bailout of the mortgage mess. As GlobeSt.com reported on the heels of the announcement, President Bush unveiled the creation of a public/private group–Hope Now–and its membership has “agreed on a set of industry-wide standards to provide relief to these borrowers in one of three ways: by refinancing an existing loan into a new private mortgage, by moving them into an FHA-Secure loan, or by freezing their current interest rate for five years.” Nearly three-quarters (72%) of our readers said this is too little to late, while the rest think it’s the stabilizing action that could end the crisis. Commentator Doug Bibby, president of the National Multi Housing Council, has his own thoughts on the subject:

“The results don’t surprise me at all. The Bush program was intended to calm the markets and stabilize as many homeownership situations as they can involving those who perhaps were enticed into loan arrangements that they can’t sustain.

“The problem I have with it is, how do you parse all of the mortgage loans that are out there between those who were enticed into untenable arrangements and those who went along for the ride. It will be a huge challenge to go through those loan by loan. I can’t see how else you can do it. It’s operationally challenging. If they put all the resources thy have behind it, they could possibly solve the situation. But it’s a mammoth undertaking.

“Someone could have qualified for a certain mortgage at a certain rate but went into a subprime because they were A coerced, B enticed into it or C wanted to stretch the size of the loan and the terms as far as they could. How do you figure all of this out? Then you have investors in there. How do you determine that they’re not the owners/occupiers? What loans were maintained in portfolio of the lenders and what was sold to secondary markets, and what covenants and restrictions that apply?

“Your poll says too little too late. I agree with part of that. I’m not so sure about too little, but it is too late. The market is self-correcting. We’re hearing that underwriting, construction lending and credit facilities have all tightened quite a bit. Everything has gotten tighter and costlier.

“I have two words of warning. Be careful of the kind of regulation you come up with. Congress and the federal bureaucracy have a tendency to overreact. Witness the 1986 Tax Reform Act and the devastating impact it had on real estate. Don’t let the pendulum swing so for in the other direction that the solution becomes incredibly burdensome.

“The second one is, let’s all learn from history a little better next time around. This all happened before. We warned the industry for the past two and a half years that this was going to be a train wreck. That’s not to say we were right. But we need a balanced housing policy. If the message is only that homeownership is the only way to build wealth, this is what happens.”