By John Voket
RISMEDIA, Sept. 30, 2008-In a stunning vote, the House of Representatives on Monday rejected the Bush administration’s proposed $700 billion rescue of Wall Street by a vote of 228-205. According to published reports, 132 Republicans voted against plan, only 66 in favor and 138 Democrats voted in favor with 95 opposing the measure.
It was unclear what would follow, however supporters scrambled to bring the bill up for consideration again as quickly as possible. On Wall Street, even before the vote was complete, stocks began tumbling. The Dow plunged as low as 700 points before rebounding slightly.
The decision came after lawmakers attempted to hammer out a plan to share spending controls with the current administration. The failed plan to initiate the biggest bailout in U.S. history had tentative support from both presidential candidates.
The failed plan would have authorized the Federal government to acquire a massive package of devalued assets from beleaguered financial companies to shake loose seized credit. The proposal had been designed to end a vicious downward spiral that has battered all levels of the economy.
As a result, hundreds of billions of dollars in investments based on mortgages have soured and cramped banks’ willingness to lend.
The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies’ future profits. To help struggling homeowners, the plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers’ monthly payments so they can keep their homes.
Sen. Chris Dodd, chairman of the Senate Banking, Housing and Urban Affairs Committee seemed to empathize with homeowners and average citizens who barraged lawmakers’ offices in recent days skeptical of the plan.
“I don’t know of anyone here who wants the center of the economic universe to be Washington,” said Sen Dodd, a top negotiator on the bailout. “The center of gravity is here temporarily. … God forbid it’s here any longer than it takes to get credit moving again.”
Leading up to the decision, some top real estate industry leaders and analysts agreed that something had to be done, but didn’t necessarily buy in to the bailout plan as a quick fix for volatile corrections or declining trends in the housing market.
Lawrence Yun, NAR chief economist essentially likened the bailout to the biggest jumbo mutual fund the government established for itself, ever. In a commentary to members September 22, Yun said he inclined to view the proposal, “as the biggest sovereign wealth fund investment to date.
Yun pointed out that several sovereign wealth funds have been investing in Wall Street firms and mortgage-related debts since late last year.
“Singapore, South Korea, United Arab Emirates, Saudi Arabia, and China were among the countries putting up a few billion dollars in the hopes of turning a big profit once the housing market recovers,” Yun wrote.
He explained that the principal goal of the new Treasury authorization is not to make money but to unclog the financial pipelines so most Americans, the primary investors in the program, can begin borrowing again.
“Knowingly or not, the 75 million homeowners and 100 million taxpayers have now become the key stakeholders on the side of housing market recovery,” Yun added.
While NRT President Bruce Zipf did not downplay its historical importance, he was somewhat philosophical in referring to the current situation as part of a cycle.
“This is just on a different level and at a different scope,” Zipf said. “There’s a cleansing period going on, it’s just a question how long this cleansing period will go on for.”
He remained certain, in the end, there will still be people buying and selling homes and an industry to lend the money for them to do it.
“Everybody may look a little different, with a different name and a little bit of a different structure, but this is an evolution,” Zipf said.
He said when it comes to counseling everyone from brokers to agents to the clients about declining trends in some of its markets, NRT has been doing that for years. And it appears in several of those troubled markets, the counseling is paying off.
“In some of our markets, we have been witnessing declines for up to four years,” he said. “And the good news is, in some of those markets we’re now seeing unit sales greater than the price declines. This certainly signals a rebound in the market.”
He said particularly in lower priced markets, trends are looking up.
“Price means more than anything now,” he said, adding that home owners and potential buyers should still look to the real estate market as a good long term investment.
“Real estate will never reset to zero,” he said.
Carter Murdoch, Ph.D., compliance and marketing executive for the Realtor Builder Mortgage Services Group of Bank of America said industry-wide, mortgage rates are remaining somewhat consistent. It’s the Fed that has found itself with “no bullets in the gun.”
“The number of lenders has dropped by historic proportions, thereby making it tougher for all borrowers to find funding,” Murdoch said.
Murdoch not only shared Zipf’s observation that several declining markets are showing some renewed spark, he goes as far as predicting those markets whose home values have fallen the farthest will recover the fastest.
Although the federal bailout appeared imminent, he said the fix will take some time.
“The reality is the liquidity crunch it will take a minimum of six months, possibly more than two years to shake out,” Murdoch said.
He said as a result of the economic slide in recent days, the “velocity of money has almost come to a standstill,” and a bailout is a first step, “priming the pump” to help restore overall confidence in the financial markets.
Bob LeFever, an industry consultant as well as president and CEO of The LeFever Group, illustrated that in some powerful circles of influence, the economic shakeup is all but past. He illustrated his point recalling a conversation with a broker at a boutique real estate firm in Newport Beach, California – the heart of financially shell-shocked Orange County where the extinction of virtually all its major financial services giants has cost thousands of jobs.
He said over one recent weekend, after the bailout was proposed, that firm closed four deals – one for $20 million, one for $17 million, one for $12 million and one for $8 million.
“The agents said the reason people did it because they felt the government proposal will redefine the bottom of the real estate market,” LeFever said. “People with money, understand that the crisis is over.”
He said the final twist to the whole national financial debacle is the government bailout. But at what cost will it come?
“I liken this to a hurricane,” LeFever said. “First comes the wall of water. Then the eye of the hurricane comes over – the eye of the hurricane is the government stepping in with a $700 billion package.
“Now the aftermath is coming. This mess ain’t going to get cleaned up in 72 hours,” he added.
LeFever suggested consumers who don’t have to buy or sell might want to hold tight to see how the back end of this historic hurricane shakes out.
Rei Mesa , is President of Prudential WCI Real Estate in Florida, the company has over 40 locations and more than 2,000 real estate sales associates serving 17 counties throughout Florida. That state took one of the hardest hits from LeFever’s so-called financial hurricane.
He said it will be tough to tell the full impact of a government intervention.
“I’m disappointed it didn’t happen sooner, but it’s absolutely needed,” Mesa said. “Short term it’s going to affect our sales, but in the long term it’s going to bring some long term benefits.”
He, too, pointed out the availability of continuing historic low interest rates, and feels the affordability factor will soon follow, spurring the market among those who have the credit worthiness to qualify for loans.
Moving ahead, Mesa said it’s more critical than ever for everyone on the front lines dealing with consumers be as informed as possible about goings on in not only the world of real estate, but the arena in which the financial aspects of real estate transactions play out.
“We’re looked upon by the consumers as individuals who provide guidance,” Mesa said, “and quite frankly stay engaged. It’s not a necessity, but a requirement to stay informed.”
The good news Mesa sees coming out of the bailout is a leveling off of foreclosures in the short run, and a return to accessible financing for homes which are generally correcting to a more affordable price range, especially for first time buyers.
And the potential worst-case outcome?
“The most negative outcome would be more stringent requirements for qualifying for a mortgage, even for those with good credit,” Mesa said. “And if what we do today does not curtail impending foreclosures, obviously it will continue to erode values in real estate. This will make it that much longer and much harder to return to a balanced market.”