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=DJ US Home Builders Push Bold New Fix For Housing Market

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(This article was originally published Monday.)

By Jessica Holzer
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--U.S. home builders, reeling from the worst housing downturn in decades, are pushing a bold new plan of tax benefits and mortgage subsidies to jump-start the market.
The proposal would revive two measures used to combat the housing slump of the 1970s - a generous tax credit for home purchases and a federal program to push down mortgage rates to below market levels.
Industry leaders will begin selling the plan, dubbed "fix housing first," to lawmakers as soon as this week in the hope of having it tacked onto stimulus legislation Democrats are likely to push after the election.
Home builders say that legislation, which would likely include an extension of unemployment benefits and infrastructure spending, won't pack any punch unless it contains measures to help the housing sector.
"We don't have a bridge crisis, we have a housing crisis in this country and it's bringing the economy down," said Ara Hovnanian, the president and CEO of home builder Hovnanian Enterprises Inc. (HOV).
Hovnanian and the chief executives of other large home builders Lennar Corp. (LEN), Centex Corp. (CTX) and Pulte Homes Inc. (PHM) were attempting to meet with lawmakers ahead of a Wednesday hearing in the House Ways and Means Committee on the economic stimulus legislation.
National Association of Home Builders President Jerry Howard said the industry would push for congressional action before the end of the year. "The housing industry is going to be united in suggesting that we fix housing before we fix anything else," he said.
The push comes just as the industry received some rare good news on Monday. Home sales jumped by 2.7% in September, the Commerce Department reported.
The industry is working on finalizing the details of the plan, which Howard describes as a "sort of resurrection" of the policies used during the last severe housing downturn.
In 1975, Congress passed a $2,000 temporary tax credit on all sales of new homes. The industry is pushing for a tax credit of at least $12,000 and up to a limit of $22,000, depending on median area home prices.
Home builders contend that a $7,500 tax credit for first-time home buyers that Congress passed this summer has been a disappointment, in part because beneficiaries must pay back the government over time. "It absolutely did not do anything for sales," Pulte Homes Chief Executive Richard Dugas said.
In addition, the industry wants to mimic a 1970s program in which the government corporation Ginnie Mae subsidized mortgage rates for some borrowers. Under the program, Ginnie Mae paid lenders full price for loans with below-market rates and then resold them at lower market prices, swallowing the difference.
Called Ginnie Mae Tandem, the program cut rates on 30-year fixed-rate mortgages from above 9% to 7.5%. Today, the largest home builders want the government to push rates on such mortgages, which are hovering around 6.25%, down to 2.99%.
Along with the tax credit, the move "would be a giant change" for the industry, Dugas said. Under the plan, both the tax credit and the mortgage subsidy would be temporary, lasting perhaps six to nine months, Howard said. Unlike in the 1970s, the incentives would apply not just to new homes, but existing homes as well.
The industry is still hashing out how the mortgage subsidy program would work. One potential glitch is that Ginnie Mae no longer buys mortgage loans; it guarantees payment for investors on pools of government-insured loans that are packaged into securities.
The mortgage finance companies Fannie Mae (FNM) and Freddie Mac (FRE) could somehow play a role now that the government runs them, Dugas suggested.
The industry insists that home buyers not be required to reimburse the government for the tax credit.
Lawrence Yun, the chief economist for the National Association of Realtors, said the requirement to pay back the government was "a huge psychological barrier" of the $7,500 tax credit geared toward first-time home buyers.
"As currently structured, people don't see it as a tax credit, but as an additional loan they have to repay," he said.

-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; [e-mail]

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(END) Dow Jones Newswires
October 28, 2008 07:36 ET (11:36 GMT)
Copyright (c) 2008 Dow Jones & Company, Inc.- - 07 36 AM EDT 10-28-08