Las Vegas Sun

March 28, 2024

HOUSING:

Builder has idea about how U.S. can help

Buy underwater owners’ mortgages using eminent domain power, he suggests

Signature Homes founder Richard Plaster is calling on the federal government to use its power of eminent domain to ease the housing crisis.

Plaster says he is worried about homeowners walking away from their homes en masse because they are underwater — owing far more than the homes are worth.

If something isn’t done, that will add to the many foreclosures on the market, he says. He adds it makes no sense for homeowners to stick around when they are underwater by more than $100,000, as many are.

“There is going to be real social change where people walk from houses on a wholesale basis,” Plaster says. “What I am concerned about is when (the homeowner) wakes up, because so many people feel so dutiful about debts, that they need to repay them. But I am afraid if something is not done immediately, that characteristic of paying your debts is going to be meaningless to somebody who is totally buried in his house.”

Plaster’s idea: In the next five years, the government would be able to use the power of eminent domain to purchase any mortgage if requested by an underwater homeowner.

“Eminent domain requires a public purpose, and the purpose is to revive the American economy and save the middle class,” Plaster says.

The government should pay a price equal to the fair market value of the home at the time the request is received. There would be a fixed $40,000 charge, which is the average foreclosure cost.

The lender would get cash to use as new capital and will get rid of toxic assets on its books, Plaster says. The government would then make a 30-year fixed-rate loan to the homeowner at the current interest rate. To reinject equity, a portion of the loan would be forgiven, he says.

The government would provide no underwriting standard to any homeowner who is current on his loan, Plaster says.

The program would cost the federal government virtually nothing. The only cost would be on subsequent foreclosures, he says.

Homeowners would be “empowered and be able to look at the future with optimism and hope rather than terror and resignation,” Plaster says.

Plaster calls himself “a little left wing” and a big supporter of Democrats, but says something must be done.

“We have a treacherous couple of years, and unless public policy gets in there and saves, to my mind, what has made America great — this ability for people to be flexible and to grab a piece and be optimistic. What we are doing right now because of the way this housing bubble burst is that we are getting people to a very pessimistic state of mind. That could be disastrous for us.

“So what undoubtedly will be a difficult two years could be a tough 10 or 20 years, and I don’t want to see that.”

Because of the housing slowdown and soft demand for new homes, Plaster suggests builders should “probably shut down as an industry. We don’t need the houses.”

Plaster says Chicago Mercantile Exchange futures trading suggests Las Vegas housing prices have another 15 percent to decline, probably because of the huge overhang of future foreclosures. It will be three years before prices start rising, he says.

“The futures market seems to think we will be close to our bottom in terms of prices in early 2010 and suggests we won’t be coming out of that bottom in 2011 and we won’t be stabilized until 2012.”

Plaster says the Chicago Mercantile Exchange has credibility even though there are not a lot of players in that market.

“In this town, we know that when you have real people betting real money on either side of the proposition, you come up with a result that is as close to the truth as you are likely to experience,” he says.

A version of this story appeared in this week’s In Business Las Vegas, a sister publication of the Sun.

Join the Discussion:

Check this out for a full explanation of our conversion to the LiveFyre commenting system and instructions on how to sign up for an account.

Full comments policy