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1. End the Housing Production Credit Crisis 2. Resolve the Faulty Appraisal Process 3. Protect the Mortgage Interest Deduction 4. Maintain Federal Support for Housing Finance System 5. Preserve Affordable Downpayments and Mortgages 6. Recognize Housing’s Important Role to the Economy 7. Defend the Low Income Housing Tax Credit 1. End the Housing Production Credit Crisis It is absolutely vital to get credit flowing to the housing sector again. In the current regulatory climate, lenders have basically stopped making acquisition, development and construction (AD&C) loans that are necessary to allow builders to construct new homes. Credit is the lifeblood of housing. Home builders cannot keep their doors open and create jobs in their communities if they cannot get credit to build even pre-sold homes. And when lenders call in performing loans, everyone suffers. Workers get laid off, sound projects go uncompleted and banks take possession of unfinished property. Federal bank regulators maintain that they are not encouraging institutions to stop making loans or to indiscriminately liquidate outstanding loans. However, NAHB members who are dealing with banks all across the country suggest that bank examiners in the field are adopting a significantly more aggressive stance on AD&C loans out of fear of the regulators coming into the banks and targeting them. With inventories of new homes nearly depleted in many markets, builders should be gearing up to meet demand, create new jobs and keep the economic expansion moving forward. The only thing holding builders back in these locations are traditional lenders, who still aren’t providing the credit needed to renew the production process. NAHB is urging Congress to support bills pending in the Senate and House that would help restore the flow of credit for home building. Sen. Robert Menendez (D-N.J.) on Feb. 7 introduced S. 2078, the Home Building Lending Improvement Act of 2012, which offers a legislative solution aimed at ending the freeze in housing production credit that has forced countless home building firms across the nation to shutter their doors, resulting in grave repercussions for job growth and the overall economy. Similar legislation to resolve the ongoing credit problems for home builders was introduced in the House last year by Reps. Gary Miller (R-Calif.) and Brad Miller (D-N.C.). H.R. 1755, the Home Construction Lending Regulatory Improvement Act, has more than 85 cosponsors. In a Feb. 10 address to the NAHB Board of Directors in Orlando, Fla., Federal Reserve Chairman Ben Bernanke said that restraints on credit for home buyers and home builders alike continue to impede the housing and economic recovery. "Banks remain reluctant to make loans, both to mortgage borrowers and home builders," said Bernanke, who noted that current credit conditions are too tight for the financial system, for the construction industry and the economy. The Fed chairman said that his message to regulators is for them to take a balanced approach and to approve loans for those who meet sound underwriting standards. "Do not turn away creditworthy borrowers, and that includes home builders," said Bernanke. 2. Resolve the Faulty Appraisal Process Appraisals remain a major problem for the housing industry. The process has gone seriously wrong because some appraisers are using distressed properties – many of which have been neglected and are in poor physical condition – as comparables in assessing the value of brand new homes without accounting for major differences in condition and quality. Without such adjustments, the two are not comparable. Appraisers don’t typically enter these fixer-up homes; if they did, they would likely recognize the substantial differences between a foreclosure that lacks working appliances and a new home fitted with state-of-the-art appliances. Too often, due to faulty appraisal practices, the builder’s house winds up getting appraised at less than the cost of construction. This is not only unfair and unreasonable, but it perpetuates the cycle of declining home values, drives more home owners underwater, negatively affects housing demand and acts as an obstacle to the recovery of the housing market. Major reforms in appraisal practices and oversight are needed to ensure that appraisals accurately reflect true market values and don’t contribute to price volatility. NAHB recently released a new Appraisal Primer that discusses in detail the appraiser's role in the financing of new homes. It is aimed at helping association members strive for the best possible outcome from today's less-than-perfect appraisal process. 3. Protect the Mortgage Interest Deduction Americans overwhelmingly oppose any action by Congress to tamper with the mortgage interest deduction, but it could be eliminated or scaled back as federal lawmakers and the Administration are looking at tax increases in light of deficit concerns. The consequences would be devastating for home owners, the housing market and the nation’s economy. Any attempts to tamper with the mortgage interest deduction would raise taxes on millions of home buyers and home owners and further depress home values, leaving more home owners with mortgages larger than the value of their property (“underwater”) and fueling even more foreclosures. This cornerstone of American housing policy has been in place since the inception of the tax code nearly 100 years ago and supports the aspirations of families at all income levels to become home buyers. Nearly 37 million home owners directly benefit from the mortgage interest deduction and 70 percent of the benefit goes to middle-class home owners who make less than $200,000. Many in Congress agree that tampering with the mortgage interest deduction would harm consumers and the economy. House resolution H. Res. 25 expresses a "sense of Congress that the current federal income tax deduction for interest paid on debt secured by a first or second home should not be further restricted.” The resolution, which has more than 185 cosponsors, shows that lawmakers are aware of the critical role that the MID plays in supporting homeownership in this country. NAHB is encouraging supporters to call the Capitol Switchboard at 202-224-3121 and urge their representatives to co-sponsor H. Res. 25. To educate the public on the importance of preserving the mortgage interest deduction as a cornerstone of American housing policy, NAHB has created a consumer-oriented website, The website contains fact sheets, frequently asked questions, statistics, and other important information to allow consumers to stay informed as debate on the mortgage interest deduction moves forward. Most importantly, tells visitors how to remain engaged and make sure their opinions are heard on this important issue by connecting through NAHB’s Facebook and Twitter mortgage interest deduction communities and Eye on Housing blog. 4. Maintain Federal Support for Housing Finance System A sound housing finance system that provides a stable and affordable supply of credit for home buyers and rental housing is essential to ensure a healthy housing market, spur job creation and maintain a strong and durable economy. In the wake of the financial crisis, the private market is clearly not working. The Federal Housing Administration, Fannie Mae and Freddie Mac currently guarantee or insure more than 90 percent of all home mortgage activity and private lending institutions have shown little inclination to step up to the plate. Even with the current high level of federal support, fewer mortgage products are available now than in the past, and these loans are being underwritten on much more stringent terms. Policymakers are now looking at several proposals to wind down Fannie Mae and Freddie Mac and are weighing several options to encourage increased participation from private financial institutions. Any transition must be done in a careful and deliberate manner to avoid further disruptions to an already fragile housing finance system. The question is what will replace Fannie Mae and Freddie Mac and fill the void of their departure? Complicating the situation, the federal government is looking to trim back the Federal Housing Administration’s participation in the market, which would further limit the availability of low downpayment mortgages. As the private market assumes a greater role in the mortgage marketplace, maintaining an appropriate level of government support is essential to preserve financial stability, promote investor confidence and ensure liquidity and stability for homeownership and rental housing. NAHB supports two bills that seek to achieve these goals. Reps. Gary Miller (R-Calif.) and Carolyn McCarthy (D-N.Y.) on July 7 introduced H.R. 2413, the Secondary Market Facility for Residential Mortgages Act of 2011. The bill would stabilize housing and ensure liquidity in the mortgage market by maintaining a federal role in the U.S. housing finance system. Similar bipartisan legislation (H.R. 1859) introduced last spring by Reps. John Campbell (R-Calif.) and Gary Peters (D-Mich.) would replace Fannie Mae and Freddie Mac with five private companies that would issue mortgage-backed securities and have government backing. NAHB has presented lawmakers with a detailed proposal on restructuring the housing finance system to provide a consistent supply of mortgage liquidity and retain a federal backstop while limiting taxpayer exposure. Actively involved in this issue, the association continues to encourage all congressional efforts that seek an appropriate federal role to ensure a reliable and adequate flow of affordable housing credit. Meanwhile, in an important victory for consumers, President Obama on Nov. 18 signed into law legislation passed by Congress to restore higher loan limits through 2013 for mortgages backed by the Federal Housing Administration. Restoring the higher FHA loan limits will help to stabilize home values, provide constancy while private investors re-enter the market and enable millions of creditworthy consumers to get home loans with the best mortgage rates and lowest fees and downpayment requirements. 5. Preserve Affordable Downpayments and Mortgages Six federal agencies are proposing a national Qualified Residential Mortgage (QRM) standard that would require a minimum 20 percent downpayment, which would keep homeownership out of reach of most first-time home buyers and middle-class households. In addition, the QRM plan includes several other bad ideas that would seriously impact the average family’s ability to affordably obtain a home of their own. It would mandate restrictive debt-to-income ratios to qualify for a home loan and prevent 25 million current home owners from refinancing to lower mortgage rates because they lack the required 25 percent equity in their homes. High downpayment and equity rules along with excessive underwriting requirements will not have a meaningful impact on default rates but it will tighten lending rules to the point where millions of creditworthy home buyers won’t be able to qualify for a mortgage. Responsible consumers who maintain good credit and seek safe loan products will be forced into more expensive mortgages under the terms of the proposed rule simply because they do not have 20 percent or more in downpayment or equity. In other words, the proposal unfortunately penalizes qualified, low-risk borrowers. About 62 percent of first mortgages taken out to purchase a home last year would not have qualified under the proposed QRM standard because they had downpayments of less than 20 percent, according to LPS Applied Analytics, a mortgage data firm. NAHB estimates that it would take 12 years for a typical family to save enough money for a 20 percent downpayment on a median-priced single-family home and other research has found it would take even longer. Borrowers unable to make a 20 percent downpayment or to obtain FHA financing would be expected to pay a premium of up to two percentage points for a loan in the private market to offset the increased risk to lenders, according to NAHB economists. This would annually disqualify about 5 million potential home buyers, resulting in 250,000 fewer home purchases each year. If buyers are denied access to affordable housing credit, the shadow inventory of foreclosed homes will not be drawn down, a housing recovery will not take hold and economic growth will stall. Low-downpayment home loans have been originated safely for decades and did not cause the housing lending crisis. Subprime, no-documentation loans and other alternative mortgage products crashed the economy. The Administration and regulators must acknowledge this fact and offer a new plan that ensures a safe and healthy mortgage market and keeps homeownership affordable for working American families. 6. Recognize Housing’s Important Role to the Economy As policymakers begin debate on housing finance and budget issues that will impact job creation and future growth, they must understand the important role that housing plays in the U.S. economy. Considering the enormity of the total number of jobs attached to housing, a sector that accounts for 15 percent of the nation’s Gross Domestic Product, now is hardly the time to step back from the nation’s long-standing commitment to homeownership. Building 100 average single-family homes generates more than 300 jobs and nearly $9 million in taxes and revenue for state, local and federal governments that supports local schools and communities across the land. Perhaps more than any other consumer product, housing is “Made in America.” New homes and apartments don’t arrive in this country on container ships from Europe or Asia, and most of the products used in home construction and remodeling are manufactured here in the United States. More than 1.4 million residential construction jobs have been lost since April 2006. The pace of recovery is debatable, but based purely on population growth and demographics, the U.S. will need to build 17 million additional homes over the next decade. The gap between current production and potential housing production is more than 1 million homes. That represents more than 3 million untapped American jobs. This gap is a result of multiple factors, including deferred household formations, a lack of construction financing and flawed appraisal practices under which new homes get compared to distressed and foreclosed properties, thereby distorting true market values. There can be no economic recovery without a housing recovery. Fixing the nation's housing woes is taking on a sense of increasing urgency in Washington. In unveiling a housing plan on Feb. 1, President Obama cited the important role that home building plays in the economy. "A lack of building demand has kept hundreds of thousands of construction workers idle," said Obama. "Everybody involved in the home building business -- folks who make windows, folks who make carpets -- they've been impacted. The challenge is massive in size and scope, because we've got a multi-trillion dollar housing industry." The President on Feb. 9 reiterated the high value that Americans place on homeownership and the need to help home owners while commenting on the mortgage settlement agreement reached between the states and five major banks. "We can't wait to get things done and to provide relief to America's home owners," Obama said. "We need to keep doing everything we can to help home owners and our economy." "You work and you save your entire life to buy a home," Obama added. "That's where you raise your family, that's where your kids' memories are formed. That's your stake, your claim on the American Dream." The path forward is perfectly clear: Congress needs to take actions to restore the health of the housing industry to put America back to work. This is a sentiment shared by American voters as well. A recent NAHB survey of likely 2012 voters conducted by Public Opinion Strategies and Lake Research Partners found that despite the ups and downs of the housing market, home owners and non-owners alike consider owning a home essential to the American Dream and support politicians who embrace pro-housing policies and the mortgage interest deduction. An overwhelming 74 percent of the respondents said that owning a home is worth the risk of the fluctuations in the market and 68 percent of those who do not own a home say it is a goal of theirs to eventually buy one. Equally telling, more than seven out of 10 of all Democrats, Republicans and Independents agree that tax incentives to promote homeownership are reasonable and two-thirds of the survey respondents believe the federal government should play a role to ensure that 30-year home loans remain readily available and affordable. Meanwhile, 68 percent of voters said they would be less likely to vote for a congressional candidate who proposed to eliminate the mortgage interest deduction, a figure that was virtually identical across all party lines. 7. Defend the Low Income Housing Tax Credit As Congress looks at tax expenditures and all programs come under review, it is important to protect the Low Income Housing Tax Credit (LIHTC), the most successful affordable rental housing production program in U.S. history. Eliminating the LIHTC would bring production and rehabilitation of affordable rental housing to a standstill. Since its inception, the program has made possible the production of more than 2 million affordable apartments. It creates approximately 95,000 new full-time jobs, adds $7.1 billion in income to the economy and generates approximately $2.8 billion in federal, state and local taxes each year. In recent years, the LIHTC has produced about 75,000 new apartment homes annually. The demand for affordable housing is acute and far exceeds the ability of LIHTC projects to keep pace. The program is essential to address the shortage of affordable housing options in our cities and towns. 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  • Joanne Loftus
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