Tuesday, December 23, 2008 12:23 PM

Homebuilders Will Start '09 with "Guns Blazing"

The real estate market continues to plummet. But Jerry Howard, CEO of the National Association of Home Builders, says his group will head into 2009 with "guns blazing."

The NAHB will spend the "same or more" on lobbying in 2009 as it did in 2008, said Howard in a wide-ranging interview on Dec. 16 with National Journal. "Our members know we are in such dire straits that we have to be fully engaged and capitalized to get the job done, so you'll see us come out with guns blazing."

For the first three quarters of 2008 the NAHB reported spending $3.8 million on federal lobbying, and the fourth quarter has yet to be reported. The Jan.-Sept. number is already higher than what NAHB reported for all of 2007, when the group spent $3.22 million on lobbying, according to the Center for Responsive Politics.

In 2009, a portion of the money will be spent on the group's new advocacy effort, "Fix Housing First," a coalition of about 600 organizations and companies that will be pushing hard in January to have a home-buyer tax credit included in the economic stimulus package that will be moving through Congress early next year.

The coalition is also pushing government agencies to adopt an "interest rate buy-down" that would reduce rates on 30-year mortgages to 2.99 percent for contracts closed between now and June 30, 2009, and 3.99 percent for contracts closed after June 30 and through Dec. 31, 2009.  Both a tax credit and an interest rate buy-down were successfully used by the government in 1974 and 1975 when housing was in a tailspin.

"Both of these incentives worked in 1975," according to the

Fix Housing First Talking Points.pdf that the coalition has sent to the Senate. "The stimulus jump started the depressed economy and the effects continued long after the measures expired."

Howard said House and Senate members have been receptive to the housing industry's pitch and "are willing to listen to any reasonable" idea. To his surprise, however, Howard has gotten the cold shoulder from President-elect Obama's transition team.

"Obama has sort of mandated that he won't speak to lobbyists," Howard said. "I wear that Scarlett Letter 'L', (in reference to the fact that Howard is a registered lobbyist) so we haven't been able to make much [headway] with the transition itself. [Obama's people] won't even talk to us."

Click below to read our Q&A with Jerry Howard

(Photo by Rick Bloom)
                                                                                                                    -- Bara Vaida

Jerry Howard talks with Bara Vaida for UndertheInfluence

BV: Tell me about your advocacy campaign?
JH: It seems to us that the TARP [Troubled Assets Relief Program] bill that was passed in early fall was a necessary band-aid to keep the financial sector from collapsing, but it hasn't addressed the root of the problem which is the housing sector. Every one of those toxic assets is a mortgage-backed security. When people are losing on their home values, they will be less likely to go out and buy a car. The housing sector's impact on the rest of the manufacturing sector is absolutely tremendous. So from our perspective if the new administration and new Congress want to fix the economy and get America back to work, they need to fix housing. Housing has led the nation out of every recession since World War II. Housing led [the country] into the recession and we think we can lead it out of it.

How do we propose to do it? We won't reinvent the wheel. In 1974-1975, there was a recession and [the government] did an interest rate buy-down. Interest rates then were 10 percent and the government brought them down to 6 percent and they coupled that with a short-term housing credit that was geared at trying to increase demand. Why does that play well today? In today's market conditions you have too much inventory and too little demand, so the housing markets not only have stagnated but prices also have continued to plummet. As prices decline, that exacerbates the foreclosure issue. Builders need to do a responsible thing, which is not build. And that is happening. The numbers today showed the lowest number of housing starts and permits since 1959.

In terms of limiting foreclosures, we are open to exploring anything, We are even willing to sit down and explore mortgage restructuring cram down, (allowing a bankruptcy court judge to set lower mortgage rates), though we had fought that forever. As long as you limit the excess supply, then you have to fix demand.

BV: How low would interest rates come down?
JH: We are advocating the government would buy down interest rates to below 4.5 percent. We are suggesting it be for all homes in the Federal Housing Authority price limits and we suggest it be a buy-down for a full year, and that it start at 2.9 percent.

BV: How do you prevent from happening what happened earlier - very low interest rates driving a housing frenzy?
JH: There was very poor underwriting. We would hope and pray that the almost lax and dangerous underwriting standards aren't repeated. If you underwrite properly you will stimulate significant sales. Couple that with a true tax credit and you will stimulate demand. It's the same plan that worked effectively in 1974-75.

BV: Are lawmakers receptive to your message?
JH: The Hill is where we have been getting the most traction. Obama has sort of mandated that he won't speak to lobbyists. I wear that Scarlett Letter 'L', so we haven't been able to make much [headway] with the transition itself. [Obama's people] won't even talk to us. But on the Hill people understand the TARP program hasn't had the impact that everyone thought it would. So, it only makes sense to begin at the beginning, which is the housing sector.

BV: Obama's transition people really won't see you, won't schedule an appointment?
JH: We have tried and are trying every avenue to make this case to the incoming administration. I would just say we have had minimal success at getting in to see them to present a case.

BV: You really think it's because you are a lobbyist?
JH: It's the first time in my career that I've seen a lack of responsiveness on the part of an incoming administration. I don't know how to react to it.

BV: What about his pick for HUD, Shaun Donovan? Do you approve?
JH: The HUD nominee, Shaun Donovan, he is someone that people in the industry know and have respect for. His experience is on the multi-family side. He does know housing and that is a real plus. We look forward to when we can sit down and work with him, because we think we have a lot of commonality.

BV: How much are you spending on this Fix Housing First campaign?
JH: I can't tell you how much is being spent. It encompasses a whole breadth of the housing sector, and consumers. I can tell you that there are 600 or so members.

BV: Have you changed strategy to deal with the new administration and Congress?
JH: We haven't really shifted strategy. The tactics may change but policymakers and members [of Congress] are in the same uncharted waters that we are in, so members on both sides of the aisle are willing to listen to any reasonable discussion on any responsible proposal to fixing the situation. The new administration and the enhanced majority on the Democratic side have been raising issues related to the environment, but that isn't a problem because we are a leader in the green movement. We are looking forward to marrying our green building [strategies] with the economic recovery.

BV: What led to your shift in position on "cram-down," meaning allowing bankruptcy courts to set interest rates?
JH: It was just an about face. Things are so bad that our members realized that we need to do whatever we can to prevent foreclosures and that is why the cram down concept is one now where we will sit at the table, we'll talk about it, whereas before it was anathema. We wouldn't even talk about it.

BV: Tell me more about the layoffs at the NAHB.
JH: If you look at homebuilding companies around the country, I'd be hard-pressed to give you an idea of where there isn't a company that hasn't had to lay off people. The housing decline is impacting our membership numbers and our builder show, which is a significant part of our income. So the prudent thing to do was to reduce staff. The most compassionate way to do that was to do it decisively and in one action, rather than have people here working under a cloud. So we decided to take an aggressive action and do it only once, and cut the positions we did. Fortunately I am blessed with a visionary management staff that saw this coming a year ago, so we had a hiring freeze in place and did not fill vacancies, so a significant number of the cuts were jobs that hadn't been filled. We did 28 actual layoffs on Monday. We saved $11 million in revenue.

BV: Did you lay off staff in your government affairs team?
JH: I won't get into specifics on that. Yes, there were cuts on the government relations side but I don't want people who have lost their positions to be reflected in the press. I feel badly enough about it. I am one of the few CEO association leaders to come up the ladder. I laid off some people that I worked with my entire career, so I'm trying to be as sensitive as I can about that.

BV: How many members do you anticipate losing?
JH: It's hard to anticipate how many members we think we'll lose. We had a high of 250,000 members in 2005. We are down to about 219,000 or so.

BV: How much will you be spending on lobbying in 2009 - the same as 2008, less, or more?
JH: It probably will be the same or more in terms of spending on lobbying. Our members know we are in such dire straits that we have to be fully engaged and capitalized to get the job done, so you'll see us come out with guns blazing.

BV: Your comment on lobby spending makes me think that, in a way, K Street is recession proof.
JH: It would be disingenuous for me to agree that K Street is recession proof when I just laid off 52 people. What we have to do now is prioritize in a way that assures that the members' money we are spending is helping them get through this down time and getting to a turn around as soon as possible. That is where we are spending our money, so some of our other programs are on hold until we get things stabilized.

BV: What else is on the agenda for 2009?
JH: Once we get the stimulus package passed we have to deal with the financial regulations where the credit crunch is extreme. People are closing the door on housing finance, so even in situations where the market has been the least impacted by the slow down and where builders and developers are paying their bills and showing value and potential for profit, banks are denying access to construction money. In the worst extreme, there are markets where projects are under way and the builders are still paying their bills, and banks are still calling their loans. That just increases and exacerbates the problems that we are facing. I think this will become a bigger story.

BV: What are some solutions?
JH: We'll talk to [House Financial Services Committee Chairman [Barney] Frank and [Senate Banking Committee Chairman Chris] Dodd about it. We also have to talk to the appraisal part of the industry about that. Appraisals based on foreclosures drag down prices. They make loans look riskier than they are. So it's a domino effect, and we'll be talking to every one of the dominos to try to stop them from coming down.

BV: Are you able to take any time off for the holiday?
JH: I will take Christmas day off, and even turn off my Blackberry.

end