Builder: Eminent domain could calm foreclosure chaos

By Buck Wargo

Fri, Feb 13, 2009 (2 a.m.)

Signature Homes founder Richard Plaster is calling on the federal government to use its power of eminent domain to help ease the housing crisis.

Plaster says he is worried about home-owners walking away from their homes en masse because they are underwater — they owe far more than the homes are worth.

If something isn’t done, that will add to the large number of foreclosures already on the market, he says. He adds it makes no sense for a homeowner to stick around when they are underwater by more than $100,000, as many people are.

“There is going to be real social change where people walk from houses on a wholesale basis,” Plaster says. “What I am concerned about is when (the homeowner) wakes up because so many people feel so dutiful about debts that they need to repay them. But I am afraid if something is not done immediately, that characteristic of paying your debts is going to be meaningless to somebody who is totally buried in his house.”

Over the next five years, the government would be able to use the power of eminent domain to purchase any mortgage if requested by an underwater homeowner, he said.

“Eminent domain requires a public purpose, and the purpose is to revive the American economy and save the middle class,” Plaster says.

The government should pay a price equal to the fair market value of the home at the time the request is received. There would be a fixed $40,000 charge, which is the average foreclosure cost.

The lender would get cash to use as new investment capital and that will get rid of toxic assets of its books, Plaster says. The government would then make a 30-year fixed-rate loan to the homeowner at the current interest rates. To reinject equity, a portion of the loan would be forgiven, he says.

The government would provide no underwriting standard to any homeowner who is current on his loan, Plaster says.

The program would cost the federal government virtually nothing. The only cost would be on subsequent foreclosures, he says.

Homeowners would be “empowered and be able to look at the future with optimism and hope rather than terror and resignation,” Plaster says.

Plaster calls himself “a little left wing” and big supporter of Democrats, but says something must be done.

“We have a treacherous couple of years, and unless public policy gets in there and saves, to my mind, what has made America great — this ability for people to be flexible and to grab a piece and be optimistic. What we are doing right now because of the way this housing bubble burst is that we are getting people to a very pessimistic state of mind. That could be disastrous for us.

“So what undoubtedly will be a difficult two years, could be a tough 10 or 20 years, and I don’t want to see that.”

Because of the housing slowdown and soft demand for new homes, Plaster suggests builders should “probably shut down as an industry. We don’t need the houses.”

Plaster says the Chicago Mercantile Exchange future trading suggests Las Vegas housing prices have another 15 percent to decline, probably because of the huge overhang of future foreclosures. It will be three years before prices start rising, he says.

“The future’s market seems to think we will be close to our bottom in terms of prices in early 2010 and suggests we won’t be coming out of that bottom in 2011 and we won’t be stabilized until 2012.”

Plaster says the Chicago Mercantile Exchange has credibility even though there are not a lot of players in that market.

“In this town, we know that when you have real people betting real money on either side of the proposition, you come up with a result that is as close to the truth as you are likely to experience,” he says.

Metrostudy forecast

The research firm predicted that homebuilders will slash construction of new homes in 2009 more than they did in 2008. The latest projection calls for a drop in housing starts by 47 percent. Other forecasters are calling for less of a drop, but Metrostudy Chief Economist Brad Hunter said those predictions are unrealistically high. Homebuilding will drop in response to vacant homes and low consumer demand.

Good for real estate?

Realtor Ken Lowman of Luxury Homes of Las Vegas predicts homebuilders will continue to pull back on the number of permits for new construction and says that will be good for the real estate industry.

Lowman says the market is telling builders there is too much inventory with all the foreclosed homes for sale. The oversupply has contributed to a more than 50 percent drop in prices in some cases, he says.

“With one more wave of foreclosures expected to hit the market in 2009, we still have plenty of supply in our pipeline,” Lowman says. “No further inventory is needed.” The marketplace is still telling this to builders that the price of foreclosed homes is less than a home can built for.

If builders cut back on construction for the next year, that should help other homes begin to appreciate and set the stage for the new-home market, he says.

In other news

• The Marnell Family Trust bought a 4,974-square-foot home on Hallett Cove Court for $2.5 million. Marnell family members built the Rio and are behind the M Resort under construction.

• Michael Campbell has been named managing partner of Colliers International in Las Vegas. As managing partner, Campbell will be responsible for fiscal oversight and coordination of management. Campbell was the managing partner of First Residential RE Services and vice president/division manager of Coleman Construction and Coleman Homes in Nevada and California.

• Commerce CRG has hired Edward Borst to head its new business brokerage division. In 2007 Nevada became the first state to require real estate agents obtain additional licenses to sell businesses. Borst has previously worked for Harsch Investment Properties as senior vice president.