Approaches to mortgage crisis differ

By Michael E. Kanell
The Atlanta Journal-Constitution
Sunday, October 05, 2008

The bailout package signed into law Friday should mean easier money all along the financial chain. But how quickly will credit trickle down and how will the next president help?

The answer is especially important because — like politics — all real estate is local. And housing was a key driver in this downturn.

The housing story in Atlanta is one of uncertainty. Atlanta’s market is generally seen as being in better shape than many others, but its problems are still significant. Nursing housing back to health is a key aim of the economic proposals floated by presidential candidates John McCain and Barack Obama.

The candidates are looking for ways to salve some wounds while adding spark to the market. From home buyers to home builders, those with a stake are hoping that the formulas work — but not all proposals look equally attractive to them.

McCain’s “HOME Plan” would give “every deserving” homeowner a chance to swap a loan they are having trouble paying for a new, 30-year fixed-rate mortgage.

The plan, which would apply to subprime mortgages taken out after 2005, could keep up to 400,000 families from losing their homes, according to the campaign.

“That’s a good idea— helping people get out of a high rate and into a low rate,” said Neal Creech, owner of Creech Custom Builders in Buckhead. “As long as we don’t have that loosey-goosey regulation that we’ve had in the past.”

McCain also says he would “bolster groups like NeighborWorks America.” Chartered by Congress three decades ago, NeighborWorks is a community development corporation that provides grants to a network of 236 local groups.

What would that support mean? NeighborWorks funds groups such as Cobb Housing Inc., which offers help with down payments and counseling for home buyers, said Ralph Knight, Cobb Housing’s president. The agency also builds homes. Angela Orange, 29, will be closing on one in less than two weeks — a three-bedroom home in Marietta.

“They have just been wonderful,” she said.

Cobb Housing doesn’t work with subprime borrowers, whose loans were a leading cause of the housing crisis.

Many people with subprime mortgages have faced foreclosure. Some never had the income needed, some could afford the original interest rate but saw it soar, and some scraped by until losing a job or facing costly medical problems.

For them, home buying advice is too late and tax breaks are too little, said William J. Brennan, director of the Home Defense Program at Atlanta Legal Aid Society.

“They need mortgage modification that lowers the balance, lowers the interest, lowers the payments and makes it possible for them to stay in their home,” he said.

Both candidates have proposals for easing the subprime pain.

McCain wants a special program for delinquent subprime mortgages. Obama argues for letting bankruptcy judges revise a homeowner’s mortgage the way that judges can now rewrite other obligations.

Chuck Lewis is not enthusiastic about rewriting mortgages, but that might have something to do with his being president of One Georgia Bank.

“I don’t like to see any form of bank take a loss on principal — not on a loan made in good faith … but the devil is in the details,” he said.

Revising mortgage arrangements makes sense, but there should be limits, said Margaret Player, a Realtor with ReMax of Greater Atlanta.

“So do I think they should have the principal lowered? No. But to give somebody a six-month grace period — or a year — where they could get an interest-only loan? That’s OK. It gives them time to sell the house.”

And selling is the hinge to the market and — especially in metro Atlanta — to the larger economy.

Tax credits are useful because they make owning a home cheaper and more attractive, said Andy Isakson, managing partner of Isakson-Barnhart Development, which builds retirement communities for the affluent. Yet he sees a connection to troubled mortgages.

“Anything that helps sell homes would benefit the whole market,” Isakson said.

For homeowners, Obama proposes a 10 percent “universal mortgage credit.” Homeowners who do not itemize their taxes would be eligible. The credit, according to the Obama campaign, would provide an average of $500 to 10 million homeowners, most of them earning less than $50,000 a year. Creech said he is open to the notion but skeptical about linking non-itemizers with the credit. “I don’t see how the two play together,” he said. “But I think any time you get more of a tax break, it does have a benefit.”

And for many home buyers, the struggle is to scrape together a down payment and make sure they can make monthly payments.

A tax credit many months down the line is a nice idea but it is at best an afterthought for people such as Loleita Antone, 31, who has just purchased a three-bedroom home in Lithonia. “Well, everything you get is some help,” she said.

What really made her home purchase possible was $3,500 from the Nehemiah Corp. of America, a down-payment assistance agency. That and working 80 hours a week at two full-time jobs.

THE CANDIDATES ON HOUSING

McCain:

> Proposes the ‘HOME’ plan, a chance for “deserving” homeowners to trade burdensome mortgages for a loan reflecting the current value of their house.

> Would support groups such as NeighborWorks America that help homeowners. Locally, the group supports Cobb Housing Inc. and the Reynoldstown Revitalization Corp.

Obama:

> Would offer a universal mortgage credit of 10 percent to homeowners, most with income less than $50,000.

> Would allow bankruptcy courts to modify an individual’s mortgage payment.

> Increase penalties for mortgage fraud.