A Federal Home Values Guarantee Program in the Works
A plan to Minnesota 2020 proposed last year to save the housing market may now be going national. A federal home values guarantee plan for new home buyers similar to what Minnesota has considered has been drafted by staff on the House Financial Services Committee in Congress and is now being studied for potential cost.
The proposed bill is simply labeled a "Discussion Draft" at this point. But it is generating discussion.
Barry Bluestone, dean of the School of Public Policy and Urban Affairs at Northeastern University, solidly endorsed the concept Feb. 3 in an opinion piece written for the Boston Globe.
"This would be a great time to dust it off and try to pass it," he wrote in the article, predicting it would stabilize home prices, lift pressure from rental markets as renters would move to homeownership, reduce the number of foreclosures, make new home construction profitable again, and create jobs.
Bluestone said in an interview that he was unaware Minnesota has considered a state-supported version of a home values guarantee. That proposal from Sen. Linda Scheid and Rep. Jim Davnie, and a bipartisan group of colleagues passed appropriate committees in the 2009 Minnesota Legislature but died from inaction on the last day of the session.
Quick readings of the proposed federal bill by people familiar with the Minnesota legislation see the two as compatible and that a federal program could easily be used to cover any Minnesota budget exposure in future years.
Minnesota has three members of the House Financial Services Committee. And Minnesota's two U.S. senators would also be positioned to make sure a state program would be covered by a federal plan.
"These proposals are awfully close and look like the Minnesota plan," said Larry Buegler, the retired St. Paul banker who devised a "reversion to mean" theory a year ago for Minnesota 2020 to prop up slumping Minnesota home prices.
Among minor differences between the two is the time period that a federal insurance protecting down payments, and thus home values, would remain in effect. The draft federal legislation calls for three years from the time of purchase; the Scheid-Davnie bill called for a five-year guarantee.
In either case, the assurance that down payments would not be lost to continued falling real estate prices should restore home buyers confidence and turn the real estate market. While real estate is now under pressure in all corners of the state, recent data from realtors show the median home price in the Twin Cities metro area has fallen by more than $74,000 since the peak before the "housing bubble" burst.
Turning the real estate market would not only restore consumer confidence, now sorely lacking in all markets and business activity, but it would start to restore equity in people's homes. An absolute reversion to mean would restore more than $37,000 in average Twin Cities home values. That would be a big boost to consumer confidence and ignite a meaningful economic recovery.
This is a point Bluestone makes as well. If only a small number of homebuyers were to access such a home values insurance plan, government exposure would be minimal. If large numbers of homebuyers used the program, increased housing demand would stabilize prices and negate government exposure, he said.
Stop for a moment and think about the hundreds of billions of dollars Congress and the federal government have thrown at financial institutions to keep the nation from falling into depression or great "panics" as in earlier American history.
In his Boston Globe article, Bluestone uses the "worst case scenario" that the U.S. Treasury Department employed to "stress test" banks. In that case, a quarter of insured homes would lose an additional 22 percent of their values. A million insurance policies in that case would cost the federal government $10 billion.
That would be the "worst case," and a comparative bargain for taxpayers when measured against Wall Street bailouts that were largely triggered by the collapsing real estate markets and mortgage financing.
What Scheid, Dabney and colleagues proposed in Minnesota was a pilot program for select areas where housing prices had fallen through the proverbial floors. Given how the home price collapse has expanded to cities such as Albert Lea, Owatonna and outer ring suburbs in the past year, new areas may need to be targeted for a pilot project approach.
Then again, if Congress was to take Bluestone's suggestion and "dust off" and pass the draft bill, all of Minnesota could be covered by market-turning home values insurance through both federal and state programs. That could get the Minnesota economy on the road to recovery.
How likely is that? Too early to tell.
Congress, and nearly all of Washington, was shut down on Monday after receiving about 30 inches of snow over the weekend.