Yet another special interest group is lining up to ask for a share of the seemingly bottomless Washington cornucopia according to an article Monday morning in The Wall Street Journal.

The National Association of Homebuilders (NAHB) is ramping up a campaign to lobby for a $250 billion stimulus package which they are calling "Fix Housing First." 

The Association maintains that the financial markets won't improve until the decline in housing prices stops.  The package they are requesting would include a tax credit for home purchases much larger than the $7,500 credit (which as we discussed earlier is really a 15-year loan) that was passed by Congress earlier in the year.  The homebuilders are also asking for a federal subsidy that would lower a homeowner's mortgage rate.

The requested subsidy would target interest rates on 30-year fixed-rate government-backed mortgages for conforming loans that would bring rates down from the current 6.0 percent range to around 3 percent for those made in the first half of next year and 4 percent for those originated during the third and fourth quarters of 2009.  This somewhat mirrors the suggestion of the National Association of Realtors® (NAR) which is asking for a 4.5 interest rate buy-down for new loans. 

The tax credit would equal 10 percent of the homes value but would be capped at $22,000.  The NAHB says that the earlier credit didn't work because it was too small and had to be repaid.



According to The Journal a 1 percent rate reduction on a 30-year mortgage costs the lender, in this case the government, around 4 percent of the principle.  Therefore, a buy-down of 3 percent on a $200,000 mortgage would cost $24,000.  NAHB estimates the subsidy would cost the Treasury $143 billion.

Lawrence Yun, the chief economist for NAR has estimated that each 1 percent decline in interest rates stimulates between 500,000 and 800,000 home sales.

Critics of the NAHB proposal say that the package would likely lead to increased building which, rather than reducing the glut of unsold homes, might serve to increase it.   Others say that the focus of any government efforts in housing should be on preventing more foreclosures or that such credits and subsidies would make buying more feasible than refinancing an existing home, encouraging homeowners to abandon old homes and mortgages for new ones.  New rules by Fannie Mae and Freddie Mac which put restrictions on the purchase of second homes would discourage this practice.

The builders group plans on taking out full-page newspaper ads to promote their requests.