Monday Morning Briefing Letter - 03/24/2008 (Plain Text Version)

By Sandy Dunn, NAHB President and
Jerry Howard, NAHB Executive VP and CEO

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The latest moves to tackle the mortgage credit crisis

and buoy the nation's finance markets are good news for housing, although Congress still has some work to do on key NAHB priorities including a home buyer tax credit, FHA modernization and GSE oversight reform.

Federal Reserve
NAHB welcomed the Fed's move to cut the federal funds rate by three quarters of a point to 2.25% on March 18. This was the sixth time the Fed has moved to cut short-term rates since last September. At the same time, the Fed also cut the discount rate, which is the rate it charges banks for direct loans, from 3.25% to 2.5%. Over the previous weekend, the Fed engineered the takeover of failed investment bank Bear Stearns, and prior to these moves, announced it would allow Wall Street firms to borrow up to $200 billion in super-safe Treasury securities and pledge difficult-to-sell mortgage securities as collateral. The Fed's latest actions to shore up capital markets indicate that it understands the gravity of the situation and is taking the lead in addressing it.

Congress
House Financial Services Committee Chairman Barney Frank on March 13 announced a plan to let the FHA insure and guarantee refinanced mortgages that have been significantly written down by mortgage holders and lenders. The aim is for the FHA to provide up to $300 billion in new guarantees to get borrowers into viable mortgages. In announcing his proposal, Rep. Frank cautioned that the bill's text could change before it is officially introduced. Meanwhile, Senate Banking Committee Chairman Chris Dodd unveiled his own legislative plan to help strapped home borrowers. His "HOPE for Homeowners Act of 2008" would entail FHA-approved lenders refinancing abusive loans at a significant discount for home owners facing difficulty in meeting their mortgage payments.

OFHEO
On March 18, the Office of Federal Housing Enterprise Oversight (OFHEO), regulator of Fannie Mae and Freddie Mac, announced its decision to reduce the capital surcharge levied on the two GSEs as a way of freeing up capital for the mortgage markets. While NAHB regards this action as a step in the right direction, we believe that it falls short of providing the liquidity required to stabilize the market in its current situation. As NAHB EVP and CEO Jerry Howard said in a statement released March 19, "We were expecting a much bolder step by OFHEO, with a greater reduction in the capital surcharge" in light of the severity of the problem. NAHB urged Fannie Mae and Freddie Mac to get the most out of the additional funds at their disposal by targeting borrowers who have been shut out of the mortgage market and by taking advantage of this opportunity to eliminate the market delivery fees that were recently added to loans.

NAHB and our Grassroots Members
Prior to Congress's Easter recess, NAHB lobbyists held several meetings with key lawmakers and their staffs to help move Federal Housing Administration modernization forward. Many of our grassroots members were actively involved in this effort, reaching out to members of Congress to urge them to the get the job done. While both Senate Banking Committee Chairman Chris Dodd and House Financial Services Committee Chairman Barney Frank reported progress, ultimately House and Senate negotiators failed to approve a final bill before Congress adjourned for the holiday. Even so, it appears that important groundwork has been laid to move this legislation forward following Congress's return.

Right now, NAHB is helping and encouraging our grassroots members to set up meetings with their federal representatives and senators while they are in their home districts over the Easter recess. The idea is to urge lawmakers to take immediate action to shore up home prices, which in turn will stabilize housing and the financial markets. Specifically, builders should call on their federal lawmakers to create a temporary home buyer tax credit, enact FHA and GSE reform, expand the mortgage revenue bond program and allow businesses to carry back net operating losses for five years.

For more information or help setting up an appointment with your lawmaker in your home district, contact Molly Murray at x8282.

A call to action for local HBAs

was sent out via NAHB's PR Exchange Service (PRx) on March 17 recruiting EOs and communications professionals from across the federation in the effort to help dispel housing myths in local markets. Helping reporters understand that all markets are local and that national headlines on housing starts, sales and other information shouldn't be applied to individual communities without getting the facts straight is essential to rebuilding consumer confidence and getting buyers back into the housing market. Because a scattershot approach won't work in today's fear-driven environment where news coverage tends to be alarmist and misleading even in markets that are doing relatively well, NAHB provided several recommendations for HBAs to orchestrate a carefully planned and executed local media outreach effort utilizing every tool available. Contact: Gwyn Donohue, x8447.

NAHB Member Benefit: HBAs and members are encouraged to visit NAHB's Myth Buster Resources section on NAHB.org, which contains constantly updated materials such as region- and issue-specific talking points; housing forecasts for the nation's top 100 markets; press releases and background info on reports frequently cited by the media; Q & As addressing common housing market myths and consumer concerns; ready-made op-eds about the advantages of buying now; and consumer-targeted customizable TV spots, print ads and hand-outs. [return to top]

Builder confidence didn't budge in March

from a near-record low of 20 on the NAHB/Wells Fargo Housing Market Index (HMI), released last week. According to builder surveys conducted for the HMI, while interested buyers are definitely on the prowl in many markets, they are either reluctant to go ahead witha home purchase because of today's economic conditions or are unable to find mortgage financing they can afford with the ongoing credit crunch. Two out of three of the HMI's component indexes – the index gauging current sales conditions and the index gauging traffic of prospective buyers – each remained flat in the latest reading. Meanwhile, the component index gauging sales expectations for the next six months edged downward by a single point to 26. See our HMI press release and tables online at www.nahb.org/hmi, or contact Rose Quint (x8527) for help interpreting the data. Contact Paul Lopez (x8409) for help dealing with related media inquiries. [return to top]

Single-family housing starts continued downward in February

according to the latest figures released by the U.S. Commerce Department on March 18. While overall housing starts were virtually unchanged due to a big gain on the typically volatile multifamily side last month, a 6.7% decline was registered for single-family homes. In fact, both starts and permits for single-family units fell to their lowest levels since January of 1991 in February. NAHB used the numbers, as it did the day before when our HMI builder confidence survey was released, as further ammunition in our call for immediate action by Congress, the Administration and Federal Reserve to shore up housing markets and the overall economy. While overall hosuing starts hit a rate of 1.065 million units, single-family homes were started at a seasonally adjusted annual rate of 707,000 units and multifamily units were started at a rate of 358,000 units in February. Permit issuance, which can be an indicator of future building activity, declined 7.8% overall in the month to a seasonally adjusted annual rate of 978,000 units, with a 6.2% decline registered in the single-family sector to 639,000 units and a 10.8% decline on the multifamily side to 339,000 units. See our press release or the government's full report online. Contact Paul Lopez (x8409) for help with related media inquiries. [return to top]

A welcome ruling in a general liability insurance case

was handed down by the South Carolina Supreme Court on March 10. The court found that faulty workmanship by a subcontractor causing property damage to a home was covered by a builder's comprehensive general liability insurance policy. This ruling, in the case of Auto Owners Insurance Co., Inc. v. Virginia T. Newman and Trinity Construction, Inc., is significant because insurers across the country have been denying claims of builders for construction defects arising from the work of their subcontractors. Should insurers prevail in such cases, it could create a coverage gap that would be difficult to fill. NAHB joined the South Carolina Home Builders Association in filing a friend of the court brief in support of Newman in the South Carolina Supreme Court. The final decision is particularly heartening for builders because the law in South Carolina on this issue has been in a state of flux following the State Supreme Court's decision in another insurance-related case. Moreover, the latest decision is consistent with recent rulings by the highest courts in other states, most recently Florida, Tennessee and Texas. Those courts held that damage to a structure caused by the work of a subcontractor can constitute "property damage" caused by an "occurrence" within the meaning of the builder's comprehensive general liability insurance policy. Read more in NBN Online, or contact David Jaffe at x8317.

NAHB Member Benefit: To date, NAHB has filed amicus briefs similar to the one in this case in Arizona, Florida, Kansas, Michigan, Pennsylvania, Texas and several federal courts, arguing that the insurers' interpretation of coverage has been rigid, overly broad and not supported by the language in the policies. [return to top]

Check out the Remodeling Industry Channel on NAHB's Web site

for the latest news and trends in professional remodeling, and you'll find a reader-friendly format full of information that's updated on a weekly basis. The channel provides everything from legislative and regulatory news to tips on increasing profit and efficiency. Whether you're seeking information on legal issues, business management, consumer trends, green remodeling, lead paint, or aging-in-place design, this is where you'll find all that NAHB has to offer its members. You can access the Remodeling Industry Channel at www.nahb.org/remodelingchannel or find it on the NAHB Web site under Online Subscriptions. Contact: Kelly Mack, x8451. [return to top]