Our Housing Agenda: FHA Crisis and Jobs Crisis
Here’s what we’re working on.
- Understanding what HUD Secretary Shaun Donovan’s initiatives to strengthen Federal Housing Administration policy in go-forward lending will mean to the for-sale new home market. Already, we’ve gotten wind that stricter standards for lenders–especially as regards borrowers’ FICO scores–have effectively shut down credit options for builders trying to secure loans for their prospective buyer universe.
Here’s Calculated Risk’s topline on Donovan’s action points:
Focus on enforcement and lender accountability Reduce the maximum seller concession from 6% to 3%. Raise the minimum FICO score. Increase the up-front cash for borrower (it isn’t clear if this is an increase in the downpayment, currently a minimum of 3.5%, or requiring the borrower to pay more fees). Increase FHA insurance premiums.The proposed changes will be announced by the end of January.
The question of the minimum FICO score is probably of most urgency to home builders. We’d heard that some banks–attributing intensified pressure on them from stricter FHA policy–effectively called for FICO scores of 640 for buyers of entry-level homes.
Bottom line is that’s going to disqualify many would-be buyers–solid or not.
Another top of mind issue: jobs.
Tomorrow, President Obama convenes a jobs summit in DC, with leaders of many of the nation’s top businesses in attendance.
The New York Times columnist, Princeton University professor, Nobel-award winning economist Paul Krugman has called for a latter day Works Projects Administration New New Deal program that would generate a million jobs in the next year.
Alas, the “Conscience of a Liberal” and political expedience aren’t trending so harmoniously right now; so throwing more billions after the trillions that have been spent is going to be a tough case for the administration to make.
Today in a Wall Street Journal op-ed piece, the President’s chair of the Council of Economic Advisors Christina Romer provides a framework for how Obama and his Summitees are likely to begin hammering at the jobs conundrum.
One idea is to give direct incentives for homeowners to retrofit their homes to improve energy efficiency. This approach would be convenient and certain, and it could encourage millions of homeowners to make cost-effective investments they might not have done for years, if ever. It could help both stimulate the manufacture of retrofit products and increase construction employment. Others have suggested incentives to help small businesses invest, grow and create jobs. This could include measures to restore the flow of credit for small businesses and targeted tax cuts. In these types of ways, a moderate and targeted investment by the government might be leveraged into significant employment gains and purchasing power by small businesses.
Direct government investments can also play an important role. We’ve already seen from the Recovery Act that spending on infrastructure—everything from roads and bridges to schools and municipal buildings—is an effective way to put people back to work while creating lasting investments that raise future productivity.
All these ideas are just that—ideas to be discussed, refined and evaluated. Action on any measures to spur job creation will be worked out with Congress after careful study, and will be done in a fiscally responsible way. But it is important to use Thursday’s Jobs Forum at the White House as a chance to confront the challenges our workers and firms face, and explore creative, cost-effective solutions.
As we’ve posted earlier, we feel that home builders can and should play an active role in reigniting job growth, perhaps taking a page out of both Krugman’s WPA idea, and Romer’s public-private partnership notion.
One form of housing inarguably in short supply everywhere is workforce housing–close enough to downtowns where first-responders could live, and in affordable enough neighborhoods to attract these vital workers.
We feel that for the next 24 months, public and private home building companies and their supplier partners should rekindle the “Fix Housing First” mission around partnering with municipalities to provide new workforce housing zones in every city environs.
Access to credit, to vertical construction loans, to renegotiated terms on land portfolios would be eased as long as new housing achieved goals of serving a municipality’s workforce housing needs.
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