NEW YORK (Reuters) - President Barack Obama’s plan to deal with the U.S. housing crisis will help as many as 9 million families restructure or refinance mortgages to avoid foreclosure, according to a summary released by the administration on Wednesday.
* Administration releases homeowner aid plan aimed at helping 7 mln to 9 mln families avoid foreclosure
* Plan to provide refinancing for 4 mln to 5 mln homeowners
* Plan to provide $75 billion to help 3 mln to 4 mln “hard pressed” homeowners
* U.S. Treasury to double Fannie, Freddie preferred stock backstop agreements to $200 billion each
MICHAEL CHEAH, SENIOR PORTFOLIO MANAGER, AIG SUNAMERICA ASSET
MANAGEMENT, JERSEY CITY, NEW JERSEY:
“This plan is good, but it is unnecessarily complicated. Every effort helps, but the question is effectiveness. I think it could come with side effects, like people trying to game the system. The Fed should just go ahead and expand the purchases of mortgage backed securities. If you can push mortgage rates down enough, it will reignite mortgage refinancing. The later they implement this, there will be more upside-down loans and fewer people will benefit from refinancing.”
LAWRENCE WHITE, ECONOMICS PROFESSOR, NEW YORK UNIVERSITY STERN
SCHOOL OF BUSINESS:
“Any start that tries to get at the foreclosure problem is a good start. There are some instances -- until you go case by case you don’t know -- where the amount of writedown that would have to happen is so great that the situation is better off with a foreclosure and finding a new occupant.
“Short of that, there’s a lot of social gain to avoiding foreclosures, avoiding the transaction costs of foreclosures, which are substantial, and avoiding the social and neighborhood costs of foreclosure that are also substantial.
“I keep on being an optimist and I keep on being wrong. But I think the combination of the stimulus package and the efforts at dealing with foreclosures will mean that maybe by the fall we see a bottoming out of housing prices.
ANDREW BEKOFF, CHIEF INVESTMENT OFFICER, LPB CAPITAL LLC,
“The plan has a real shot to help. The combination of Government action and additional funding Fannie and Freddie should help keep millions of Americans in their homes. Reducing the monthly mortgage payment is a good start but we have to have some provision that shifts the burden away from the tax payer or allows the government to share in profits or recoup losses when the housing market recovers.”
ARTHUR HOGAN, CHIEF MARKET ANALYST, JEFFERIES & CO, BOSTON:
“The headlines talking about what will be announced later today and the magnitude of the program is encouraging but it’s starting from a pretty low base, considering that we’ve priced in disappointment on all three legs of the stimulus stool. The three legs being the stimulus plan, bank rescue and today’s announcement of the foreclosure proposal.
“To the extent is the market going to be patient in terms of waiting for this to get some footing here, I think that we’ve priced that in effectively, over the significant sell-offs we’ve seen on the first two legs of the announcement.
PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:
“The housing starts were bleak in January as builders respond to poor demand in the market. Any reasonably affordable housing plan will be too small to correct the enormous dislocation in the market. The human cost will be reduced a bit, but very expensively and perhaps not on a lasting basis. Production of housing is so low now that surely inventory is being worked down and the stage is being set for an eventual recovery, but the demand side of the market has to reappear and that’s going to be much slower this time than would be normal.”
TOM SOWANICK, CHIEF INVESTMENT OFFICER, CLEARBROOK FINANCIAL,
PRINCETON, NEW JERSEY:
“Unlike yesterday’s negative market reaction to the signing of the stimulus package, market reaction today is quite positive with S&P future’s up 10 points in pre-market trading. Will the housing plan be enough? Probably not, but the administration knows that correcting the housing downturn will have a very positive impact on the economy and therefore is committed to spending more than is currently granted. Mortgage applications soared 45.7 percent this week in response to somewhat lower borrowing costs.
“The continued weakness in housing starts is actually a good thing because it brings the supply and demand equation closer in line. Raising Fannie and Freddie’s combined mortgage portfolio by $100 billion also helps to clean up excess mortgage supply that is hampering lending activity. Finally, we have to remember that today’s announcement is on top of the proposed expansion of the TALF program which also directly targets the U.S. consumer.”
THOMAS NYHEIM, PORTFOLIO MANAGER, CHRISTIANA BANK & TRUST CO,
“We seem to be a negative feedback loop. There are job losses because of home foreclosures and then you get more home foreclosures. (Obama’s) trying to stem foreclosures and slow the whole cycle down.
“But a lot of these contracts in how they’re written, you can’t modify their mortgages unless you default. You went into an ARM and it’s going to start resetting in two to three years. The contracts are pretty clear. That’s the difficulty.”
DOMINIC KONSTAM, HEAD OF INTEREST RATE STRATEGY, CREDIT SUISSE,
“I have not seen enough details to make a strong determination whether this is going to be a major turnaround, but as I understand it, they are not talking about reducing the principal. They are basically just trying to help people to avoid foreclosure who are behind in their payments who have negative equity, and I’m not quite sure how that is going to work. If you are going to reduce the payment, you are going to subsidize someone, and you are not planning on bringing down the principal, then what is the deal here?”
FRANK LESH, FUTURES ANALYST AND BROKER, FUTUREPATH TRADING,
“I guess there’s still hope that some of this might work. I think we’re all realizing that there is no cure-all for this. Nevertheless they’re making efforts, they’re trying. We haven’t given them a lot of time to figure things out either. We’re making efforts and that’s indeed a positive. How well all of this works, we will know in the fullness of time. We’re going to get a little better open, let’s see if we can hold the gain or stabilize right here. Victory right now is just if we hold. They’re aware of how equities react to the news. They don’t want to spook the markets because the markets are in a fragile state right now and are easily spooked.”
WILLIAM LARKIN, FIXED INCOME PORTFOLIO MANAGER, CABOT MONEY
MANAGEMENT, SALEM, MASSACHUSETTS:
“They are trying to revive Fannie and Freddie. That’s probably the biggest part of the news. The other parts of it I think are probably expected.”
PETER KENNY, MANAGING DIRECTOR, KNIGHT EQUITY MARKETS, JERSEY
CITY, NEW JERSEY:
“It’s helping futures, but the Obama plan has little to no chance of having any immediate impact on real market psychology. The trend is lower, even from glass-half-full perspective, it won’t do anything to change the downdraft in the equity markets.
“First of all, it’s a plan that is going to be thrown up against the wall of actual reality. That housing starts have fallen off the edge of a cliff, and even if it were implemented today, it would still take two quarters to have a minimal impact.
“Expectations for anything other than the starkness of what we’re having to deal with is unreasonable. You can’t be optimistic about turning around in one year what’s been decades in the works. This housing crisis has been brewing for decades. The Obama plan, with all of its good intentions, would have to perform nothing less than a first class miracle to turn things around. And frankly, the markets aren’t banking on it.”
TU PACKARD, SENIOR ECONOMIST, MOODY’S ECONOMY.COM, WEST
“It’s an important step because the biggest problem we have is stabilizing asset prices. So clearly a housing plan that stabilizes the most important asset of all -- the price of houses -- is key. The housing price has been falling dramatically and affects household consumption. Until you stabilize it, you don’t stabilize household wealth. We will still have to wait and see what comes out of this. Part of the problem with previous programs was they didn’t have much teeth. If this one lacks teeth, it will suffer the same fate.”
MARKET REACTION: STOCKS: U.S. equity index futures extend gains. BONDS: U.S. Treasury debt prices extend losses. DOLLAR: U.S. dollar rises to 6-week high versus the yen.
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