Bloomberg News

Housing Industry Asks U.S. Congress to Adopt ‘No Harm’ Principle

October 06, 2011

Oct. 6 (Bloomberg) -- There was a time when Jerry Howard and his lobbyists at the National Association of Home Builders would buttonhole lawmakers to ask for a favor or policy fix.

Today, confronted with stagnant home prices, mounting foreclosures and the thinning ranks of housing lobbyists, Howard and his remaining allies are asking for something new.

“Shut up,” Howard said, paraphrasing his message to lawmakers. “Stop saying we’re going to eliminate the mortgage interest deduction. Stop saying we’re going to require everyone to put 20 percent down on a house. Stop saying there’s no role for the federal government.”

Builders and their pro-homeownership allies are regrouping amid the worst housing slump since the Great Depression. Fannie Mae and Freddie Mac, the largest sources of home lending in the U.S., are dependent on taxpayers for survival. Defaults are mounting, home prices are stagnant and a fifth of borrowers owe more on their mortgage than their property is worth.

Trade groups for homebuilders and mortgage bankers are feeling the pain, too, cutting staff and lobbying budgets. Many, including the National Association of Realtors, are shifting at least some of their focus away from Washington, training their members to educate the public and politicians about the value of homeownership.

Rare Defeat

Long a powerhouse of deep pockets, strategic alliances and troops of politically engaged local activists, the housing industrial complex suffered a rare political defeat last month when Congress refused to block an automatic decrease in the size of loans that can be guaranteed by Fannie Mae, Freddie Mac and the Federal Housing Administration. As of Oct. 1, the government won’t buy or guarantee any loan greater than $625,500, down from $729,750. Real estate agents and homebuilders fought to preserve the higher limits, saying the change would hurt home sales.

“We don’t believe, frankly, that the way we’ve been successful in legislative and regulatory battles in the past is going to cut it this time,” said Howard, chief executive officer of the National Association of Home Builders. “It’s almost like a perfect storm.”

Among trade groups, the NAHB has been hit particularly hard, with membership falling 40 percent since 2006, to 150,000 companies. Staff has shrunk by a third and lobbying expenditures in the first half of 2011 were about a fourth of the $4.6 million the group spent in 2008.

Realtors Step Up

Frustrated by the reception they’re getting in Washington, the association, like the Realtors, is relying more on its grassroots, training members how to get the message out to their communities.

In Louisville, Kentucky, Chuck Kavanaugh has teamed up with the Louisville Urban League and other groups to convince lawmakers that homeownership remains a valuable goal for the country’s economy and social fabric.

Their message to local leaders and the home offices of House and Senate members: “Don’t make it harder right now,” said Kavanaugh, executive vice president of the Home Builders Association in Louisville. “Stop and take a breath.”

The National Association of Realtors is undertaking its own grassroots effort with an eight-month bus tour across the U.S., part of its “Home Ownership Matters” campaign to educate consumers about protecting the “American dream of homeownership.”

“In Washington, the challenge is you have a lot of well- intentioned people who don’t understand the impact of decisions,” said Ron Phipps, NAR’s president. “We’re better off with those well-intentioned people stepping back instead of coming up with solutions that have unintended consequences.”

Staff Reductions

The association, which has cut staff by about 10 percent, spent $10 million on lobbying in the first half of this year. That puts the Realtors on a path to exceed their record 2009 total of $19.4 million, according to the Center for Responsive Politics in Washington, which tracks campaign finance and lobbying.

The Realtors’ jump in lobbying spending stands alone. In addition to the homebuilders, the Mortgage Bankers Association cut spending, reporting $1.2 million in lobbying in the first half of the year, down from $4.2 million in 2008, according to the Center for Responsive Politics.

“Our association, other associations in the housing space, have had to contract,” said Bill Killmer, the mortgage group’s chief lobbyist. “You see MBA continuing to maintain an active political presence, but working toward a time when we can raise the level of our political activity.”

Shifting Political Climate

Complicating matters is the shifting political climate on a subject that in the past has transcended partisan politics, with Republicans and Democrats united behind affordable homeownership.

The Fannie Mae and Freddie Mac bailout, now at more than $170 billion, has many politicians rethinking their allegiance to the cause. Some, including President Barack Obama, want the government less involved in the mortgage market.

Budget cutters, in the form of a deficit-reduction supercommittee, have put the mortgage interest deduction on the table, a once-unthinkable act. The panel is charged with finding $1.5 trillion in budget savings over the next decade by Nov. 23.

Tomorrow, Senate Finance Committee Chairman Max Baucus, a Montana Democrat, will hear ideas for revising tax breaks for homeowners, including a capital gains exemption for homeowners who profit from selling their primary residence.

Regulation Changes

The Mortgage Bankers Association is keeping an eye on the supercommittee for that reason, Killmer said. Mostly, though, the association is mobilizing members to talk to lawmakers and congressional staff about rulemaking. That was on the agenda last week when 50 mortgage bankers went from a Washington conference to meet with senior aides and lawmakers on Capitol Hill.

Of chief concern is an effort by regulators to write minimum standards for mortgage borrowers. As drafted, the risk retention plan would require homebuyers to put at least 20 percent down on a mortgage to qualify for the best rates.

Housing lobbyists, lenders and consumer groups are united against the proposal, which they say would deny mortgages to millions of would-be homebuyers and do little to reduce defaults.

Overall, the market’s problems are so intractable that a mortgage policy overhaul is unlikely to make it onto the congressional agenda until after the 2012 elections.

‘Do No Harm’

“Our longer-term worry is that you do no harm to a housing economy that’s already in a very fragile state,” Killmer said. “The single biggest thing is the overall macro economic recovery. You’ve got to restore consumer confidence so that people will open up their wallets.”

To some extent, the industry is getting help from the same economy that’s hurting it. Lobbyists and trade group members don’t expect Congress to do anything, such as reducing the deduction for mortgage interest, that might hurt the recovery.

“I can’t imagine that another blow could be struck” against the struggling industry, said Susan Benedetti, a vice president at First National Bank Alaska in Anchorage who was in Washington last week for the mortgage bankers conference. “I would be shocked.”

--Editors: Jeanne Cummings, Justin Blum

To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net; Kristin Jensen in Washington at kjensen@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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