Friday, Feb. 6, 2009 | 2 a.m.
- Total decline in median price of homes could top 50 percent (2-2-2009)
- Builder calls timeout as housing slide worsens (2-2-2009)
- Experts say housing’s future is cloudy (1-30-2009)
- Prediction: Las Vegas home-price decline will hit 52 percent (1-30-2009)
- Foreclosure crisis also hitting renters hard (1-30-2009)
- Index shows further decline in home prices (1-27-2009)
As this week’s Senate debate over economic recovery dealt with jobs and pork spending, Nevadans might have wondered what the government is doing about the elephant in the room — the housing crisis.
In few other states can the mortgage mess at the root of the economic meltdown be seen as clearly as in Nevada. The state has had the highest foreclosure rate in the nation for two years running. Half of Nevada’s homeowners are underwater on their mortgages, by one account — they owe more than their houses are worth.
President Barack Obama’s $900 billion American Recovery and Reinvestment Act pending in Congress is not focused on that — it’s supposed to be about jobs and cash: Lubricating the economic engine that has seized up so badly that more than 1 million jobs had been lost by the end of 2008. Nevada’s jobless rate is now 9.1 percent.
So what part of the Obama recovery plan will save housing?
According to the Democrats, not much. But they say that is by design.
Treasury Secretary Timothy Geithner is preparing a comprehensive housing fix separate from the stimulus package. To shore up housing, Geithner plans to tap into the $700 billion Wall Street rescue plan Congress passed last year. One idea is to help homeowners avoid foreclosure by rewriting their loans to provide more manageable monthly payments.
Democrats, aware Geithner’s plan is coming soon, have scarcely talked about housing this week, aside from the provision to give homebuyers a $7,500 tax credit. And their silence gave Republicans an opening.
Although Republicans also know that Geithner is working on a plan, they proposed one of their own as part of the Obama recovery legislation: The government would provide 4 percent, fixed-rate 30-year loans for any qualifying homeowner in the country.
The proposal gave Republicans a platform to talk about mortgage relief at a time when Democrats were not.
It was a stunning idea. Republicans helped stall mortgage relief last year, and their Senate pitchman, Nevada Republican Sen. John Ensign, single-handedly delayed last year’s housing bill as foreclosures mounted. (He was trying to attach a renewable energy tax break.)
Ensign said he has since changed his mind.
“It was easy, for a while, to blame irresponsible homeowners for taking risky loans and playing the system,” said Ensign, the only Nevadan to vote against a mortgage relief bill signed into law last year. “But the cancer caused by the housing crisis has spread to every aspect of our economy.”
The Republican plan went like this: For $300 billion, Republicans could rewrite 40 million mortgages, giving homeowners an average of an extra $450 a month walking around money. In Nevada, 477,020 homeowners could benefit.
The 4 percent home loans sounded too good to be true, and some economists said they would be. They warned the proposal would expose the government to great risk if home prices continue to fall, and would do little to curb the problem of excessive inventory.
Ultimately, a majority of senators were unconvinced. When the amendment came up for a vote on the Senate floor Thursday evening, it failed 35-62. Five Republicans joined Democrats in stopping the plan from advancing.
But for Republicans, the defeat hardly mattered. They went from the party that was simply opposed to the Obama plan to the one that turned a new leaf promoting mortgage relief.
“They gave us an opening,” one senior Republican aide in the Senate said. “In one week, we became a party about housing.”
Indeed, and Democrats realized they were being outmaneuvered in the court of public opinion. So they did join in passing a separate Republican amendment to double the tax credit for homebuyers, raising it to $15,000.
Democrats then paused, heeding the president’s request, sent in a letter this week to Majority Leader Harry Reid and other Senate leaders, from his director of the Office of Management and Budget, Peter Orszag. The director asked both parties to hold off on major housing measures until the Geithner plan could be completed: “In the coming days, the president and Secretary Geithner will be releasing a comprehensive proposal to strengthen and invigorate this part of the economy.”