US Housing Upturn Unlikely Before '09

Source : The Business Times, August 27, 2008

Recently-passed law to avert foreclosures a key move: official

(WASHINGTON) A recovery from the worst US housing slump since the Depression is unlikely until 'well into 2009,' Housing and Urban Development Secretary Steve Preston said on Monday.

'I think we're right in the middle of it, and I think we have a ways to go before we start seeing a turnaround,' Mr Preston said in an interview in Washington. 'We'll be well into 2009 before we see some real energy in this market.'

A slowdown in home sales and a drop in prices has contributed to record foreclosures as borrowers struggle to meet their monthly mortgage payments.

Mr Preston said a foreclosure-prevention law Congress passed last month will be important in aiding mortgage-finance companies Fannie Mae and Freddie Mac, which are supporting most new mortgages.

'We have to begin seeing the inventory of new homes begin to reduce so that we can see the buying activity begin to pull us out of the situation we're in,' Mr Preston, 48, said.

US banks repossessed almost three times as many US homes in July as a year earlier, and the number of properties at risk of foreclosure jumped 55 per cent, California-based RealtyTrac Inc said in an Aug 14 report.

The law enacted last month creates a Federal Housing Administration programme in HUD to insure as much as US$300 billion in refinanced 30-year, fixed-rate mortgages for 400,000 struggling homeowners. The law lets the US inject capital into Fannie and Freddie through stock purchases or government loans.

Mr Preston deferred to the US Treasury and Federal Housing Finance Agency, the new regulator of Fannie Mae and Freddie Mac, on whether the companies should be bailed out or nationalised.

'I don't know what the future holds for them,' he said. Mr Preston said 'it's possible' he may propose other solutions to the housing crisis, without being specific.

'Many of the policy solutions are out there and working,' he said. 'My guess is that you're going to see more fine-tuning of these programmes to ensure that they're working, rather than large-scale change.'

Other programmes include an industry-led effort called the Hope Now Alliance organised last year to help troubled homeowners modify their mortgages to make monthly payments more affordable.

A programme HUD started a year ago called FHA Secure is also aimed at averting foreclosures by helping borrowers with adjustable-rate mortgages refinance into FHA-insured mortgages.

Mr Preston, who was head of the US Small Business Administration, in June replaced Alphonso Jackson, who quit amid a federal criminal probe into contracts awarded by the agency. -- Bloomberg