Economic Update — Plan Aims to Stanch Foreclosures

On Tuesday, it was the stimulus in Denver. On Wednesday, it was the Homeowner Affordability and Stability Plan in Mesa, Ariz. (Thursday, Detroit?) Unfortunately, “HASP” doesn’t make for a snappy acronym, but it is the Obama administration’s name for its newly announced plan to slow down the hemorrhaging of the residential real estate market, especially spiking foreclosure rates, and especially in places like Arizona. “In the past, if you found yourself in a situation like this, you could have sold your home and bought a smaller one with more affordable payments,” the president said, recalling those carefree pre-credit freeze days of yore. “Or you could have refinanced your home at a lower rate.” The plan, which can be mostly enacted by the president’s executive authority to use $75 billion already allocated, essentially expands refinancing options for underwater homeowners, if their mortgages are owned or guaranteed by Fannie Mae or Freddie Mac, and provides incentives (subsidies, that is) for other lenders to alter the terms of mortgage loans to make them more affordable. It doesn’t allow bankruptcy judges to change the terms of a mortgage, which would require action by Congress, though the administration will probably seek that as well. Foreclosure filings, according to Irvine, Calif.-based data firm RealtyTrac, were down about 10 percent in January from the month before, but no one believes that to be a sign of health in the residential market. Rather, it meant that banks and other lenders were waiting to see what the federal government would do. Housing starts took a dive in January, dropping 16.8 percent to an adjusted annual rate of 466,000, according to the U.S. Department of Commerce. If the rate of decline over the last three months is annualized, that comes to a 86 percent drop. Clearly that’s bad news for people who build houses. But on the other hand, why do most markets need any new houses for now, considering the large inventories, driven by foreclosures, still clogging most markets? Fed chairman Ben Bernanke, who has been out of the limelight for a while (and probably glad for it), spoke on Wednesday, on the occasion of the Fed’s release of long-term projections for the economy, about how the economy was facing an “unusually gradual and prolonged” period of recovery. However, the Fed was surprising upbeat about how much better things will be in the long run: 2.5 to 2.7 percent annual growth over the next six years, unemployment around 5 percent. But these are just long-term averages: 2009, according to the Fed, is pretty much a lost cause. The equity markets were back in yo-yo mode, as if they couldn’t quite decide whether the Obama plan was good news or not. In the end, the Dow Jones Industrial Average was up 3.03 points, or a scant 0.04 percent, while the S&P 500 lost 0.1 percent and the Nasdaq was down 0.18 percent.