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January 21, 2009 The Honorable Barack Obama President of the United States 1600 Pennsylvania Ave., NW Washington, DC 20500 Dear President Obama: On behalf of the over 70 million+ American homeowners, we congratulate you on your inauguration, welcome you to your new home, and pledge our support for your efforts to help American homeowners. The challenges faced by our nation are immense, and we thank you for your vigorous and successful preparations to address them immediately. We would also like to make some constructive suggestions for future initiatives. We look forward to supporting the economic stimulus package that you have developed with Congressional leaders. Components of the package will directly address the housing crisis, and other provisions will help homeowners address important economic challenges. We also thank you for your commitment to allocate $50-100 billion from the Troubled Asset Relief Program (TARP) to solve the foreclosure crisis, and for your support of separate legislation to make foreclosures subject to bankruptcy proceedings. We are delighted that the stimulus package includes improvements to the existing 10% first time buyers tax credit. With home values dropping at an average annual rate of nearly 10% over the last two years, this credit will help reluctant potential home buyers offset the risk of further declines in housing prices. Due to the $7,500 maximum limit on the credit, it will be most effective in rural and other areas with lower housing prices. In areas where entry level homes can be found for $75,000 or less, the tax credit will effectively negate a further decline of up to 10% on on the value of those homes. In more expensive urban/suburban areas, where entry level homes start at $200,000 or more, the credit cap will cover less than a 4% decline in home values, and may be a less effective buyer stimulus. The $825 billion economic stimulus package announced by House Democrats last Thursday contains many other provisions that will benefit American homeowners. Your "Making Work Pay" tax credit of $500 per worker and $1,000 for couples is desperately needed by many homeowners who have lost their jobs and/or face foreclosure, and it will help many millions of other homeowners begin to replenish the savings they have lost in the stock market and the equity they have lost in their homes. The stimulus package’s substantial funding for “shovel ready” infrastructure projects will create jobs and help the entire economy. Funding to weatherize modest-income homes and renewable energy tax credits will help both homeowners and the environment. The funding for high-speed Internet access for rural and underserved areas will also help the environment as well, because high speed broadband is necessary for teleworking. It will also enable more homeowners to benefit from telemedicine, which will become more accessible as a result of the package’s funding for modernization of health-information technology systems.Homeowners and other consumers will also benefit from the $2,500 college tuition tax credit and the e xpansion of the earned-income tax credit, funding for health insurance for the unemployed, and funding to help states pay for Medicaid and avoid cutbacks in education and other services. The stimulus package will save or create 3-4 million jobs. It is both balanced and badly needed, and we look forward to supporting its speedy passage.The economy has continued to deteriorate rapidly since the TARP fund was created and the additional need for a major stimulus package was recognized last year. At minimum both TARP and the stimulus bill will help slow our economic decline, at least for the short term. However, we also share the concerns expressed recently by House Appropriations Committee Chairman David Obey and a growing numbers of economists, who fear that the pending stimulus package and remaining TARP funds may be inadequate to turn the economy around, and believe that additional economic stimulus may be required before the end of the year. You have been ahead of the curve in recognizing the need to address the declining economy and propose a balanced and thoughtful response to our challenges. No doubt you and your senior advisors have already discussed the real possibility of a need for an additional stimulus package. We all hope that it won’t be necessary, but also realize that advanced thought and planning is prudent given the risk. We offer the following suggestions as candidates for a second stimulus package, should it be necessary: Include a major component designed to give consumers the confidence they need to return to shopping malls, restaurants, and car dealers. The largest consumer segment, the 70 million+ homeowners, have been hit with the double whammy of substantial retirement and investment losses and the evaporation of $4.5 trillion of their home equity. More than half of them still have both savings and significant equity in their homes, but right now they are focusing on rebuilding their savings for retirement and their childrens’ education. Most of them put last years’ $1,200 tax rebate towards that goal, and most of your "Making Work Pay" tax credit will be devoted to that same worthy purpose. Most homeowners (90%) have no immediate plans to move, so tax credits tied to home purchases won’t help them. To provide them a substantial increase in their cash flow so they will resume previous consumption levels, we should create a government refinancing program, which would also yield a substantial surplus that could then be devoted to other stimulus efforts. The government currently pays 2.8% interest on 30 year federal bond rates. If the government issued more of those bonds, and used the proceeds to refinance 30 year fixed mortgages for well qualified homeowners at a 1% higher rate (i.e. about 3.8%) a typical homeowner refinancing their home with a 3.8% mortgage would shave about $4,000 in mortgage payments annually every year for as long as they had that mortgage.* We believe that the opportunity to improve their cash flow this significantly would result in millions of home mortgage refinancings. It, would also increase consumer spending and create a substantial federal program surplus that could be earmarked for other stimulus efforts, such as: Lifting the cap on the 10% tax credit for the first time buyers to a range of $10,000 to $22,000, based on average local home prices, and extending the credit another year, through June, 2010. In many urban and suburban real estate markets, which is where the majority of the population lives, the prices of starter homes are more than $200,000. The higher cap will assure that it does not benefit the wealthy, yet will provideg middle class urban and suburban first time buyers the same safety margin against further declines in home values as their rural counterparts. We desparately need to get first time buyers back into those markets to clear the growing inventory of unsold new and lender owned homes and stabilize prices in urban and suburban areas. One entry level home purchase facilitates two more upstream sales, so it will also unlock homeowners further up the chain who need to move but who are held prisoner by the lack of buyers. Creating a $2,000 teleworking tax credit. A $2,000 teleworking tax credit is a logical compliment to the existing $2,000 hybrid vehicle tax credit. The credit, to be used by businesses, employees, or home based business owners to purchase computer hardware, software, and/or broadband connections, would encourage substantial growth in teleworking. The environmental, economic, and social benefits of a car that remains parked in a driveway are substantial: no vehicular air pollution, fewer traffic jams, lower gas prices, less pressure on the transportation infrastructure, and an increase in one of the most popular and family-friendly worker benefits. Additional benefits include increased demand for broadband which also facilitates telemedicine, Internet commerce, education and more. For many of the same reasons home energy efficiency tax credits for new homes and improvements should be expanded and extended, and the collection of state and local sales taxes on out of state purchases, which is opposed by 85% of consumers, should be prohibited. To be sure, other challenges face American homeowners and your Adminstration as well. The global financial services sector is broken, and the reforms being developed by the Group of 30 and Paul Volcker are badly needed. In the U.S. we should end the era of mega banks, limiting their size and prohibiting them from managing hedge funds. There should be increased oversight of money-market mutual funds and credit-rating agencies. Fannie Mae and Freddie Mac should be converted into government agencies in order to preserve their mission and to resolve the conflicts inherent in their quasi-governmental status. The Department of Justice, FTC, and HUD must continue their work to eliminate the many remaining anti-consumer practices in the real estate services sector. We will need to pass an energy bill this year to help the environment. While we must do everything it takes to prevent an economic meltdown, at some point, when the challenges we now face are under control, we must then turn our attention to the budget and find ways to curb the growth of the deficit.We hope you find these constructive suggestions to be helpful. We look forward to supporting your efforts and wish you great success. Sincerely, Bruce N. Hahn, President *based on refinancing an existing $200,000 fixed rate 6.8% mortgage
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