Posted: January 4, 2010

Local heavy-hitters tackle issues in panel discussion
By Michael Schwartz
michael.schwartz@insidebiz.com

A lack of consumer confidence perpetuated by negative news coverage and well-intentioned but to date ineffective government stimulus plans are at least partly responsible for the continuing troubles in the housing market, a panel of high-profile members of the local business community said last week.
 
That panel was made up of some Hampton Roads heavy-hitters brought together as part of the Cox Business Executive Discussion Series to dissect the problems in the economy and particularly the housing market. The seminar, a partnership between Cox Business and Inside Business, asked the panelists to tackle the topic, “The Real Stimulus: What will it take to stabilize the housing market?”
 
The crowd of about 150 filled the hall to hear Joel Rubin, president of Rubin Communications, moderate the discussion by James Koch, Board of Visitors Professor of Economics and president emeritus at Old Dominion University; Bob Aston, chairman and CEO of TowneBank; Pete Kotarides, principal of Kotarides Builders, Kotarides Developers, KPM and president of the Tidewater Builders Association; Steve Rockefeller, vice president of SunTrust Mortgage Inc.; and Van Rose, president of Rose & Womble Enterprises and New Homes Division of Rose & Womble Realty.
 
Hysteria and finger-pointing were absent from the panelists’ comments although Koch started the discussion by suggesting that some banks in times such as these may tend to hold onto their money rather than lend it out, drying up the credit market and causing housing market activity to sputter.
Aston quickly defended his industry.
 
“I take exception to Dr. Koch’s remarks,” he said.
 
Banks, at least statewide, have a loan-to-deposit ratio of 99 percent, Aston said.
 
“That certainly does not indicate that banks aren’t lending,” he said.
 
Community banking and traditional loan and deposit transactions are still open for business as usual, the “bread and butter banking,” Aston said.
 
“Securitized debt markets – that’s what has dried up,” he said.
 
Banks are facing challenges in lending partly because of mixed messages from the federal government, Aston said.
 
The regulators want banks making sound loans while the politicians want “banks to make as many loans we can,” Aston said, leading to an “inherent conflict.”
 
Rubin steered the discussion toward the local real estate market and what properties are selling and what’s sitting idle.
 
“What’s moving?” Rose said. “It’s really simple.” Homes priced below $350,000.
 
“Those worth north of that – it’s definitely a problem,” Rose said.
 
Part of the problem is that home values are still artificially inflated as a result of the housing bubble. How long that descent will take remains to be seen.
“The market is definitely normalizing,” Rockefeller said. “There is still some room to go before we hit bottom.”
 
Rose said potential home-buyers are being more patient with their purchases, searching for good deals as inflated prices continue their trip back to earth.
 
“There are still plenty of consumers but those consumers are buying safe,” Rose said. That means buying foreclosures or bank-owned properties to get good deals and buying from the 60 percent of standing inventory that’s on the market at reduced prices.
 
That is evidenced, Rockefeller said, by the fact that the mortgage industry is seeing $2 billion a day in applications; however, most are in refinancing and one in four homes these days sell for less than the mortgage amount owed on the property.
 
Government intervention, particularly questioning the effectiveness government stimulus programs are having and will have on the economy and in spurring housing activity, was debated by the panel.
 
Aston defended TARP, the Troubled Asset Relief Program, particularly the Capital Purchase Program that funneled government capital to banks from the Treasury in exchange for government ownership of those banks’ shares.
 
Aston’s bank received $76 million in the program.
 
“The reality is this program will gain traction as it goes down the road,” Aston said. “The government in my view will make a lot of money off these investments.”
But the banks that received this capital need time to use it as a means of raising more capital that can then be lent to borrowers.
 
“You have to have time to leverage that money,” Aston said.
 
Koch went after President Obama’s plan to modify mortgages and prevent foreclosures. He made a bold and probably not politically viable suggestion that instead of trying to prevent foreclosures by adjusting payments – likely only a short-term solution – troubled homeowners should be moved out of the homes and into rentals.
 
“I have a problem renegotiating a mortgage they can’t afford long-term,” Koch said.
 
That’s easy to say from an economist’s perspective. But oddly enough, the rest of the panel, whose livelihoods depend largely on the housing market, agreed with Koch.
 
“It might sound strange coming from a realtor,” Rose said, of letting homes go into foreclosure. “I’m not sure that’s so bad.
 
“To me that puts the bottom back in the market,” he said.
 
Kotarides, whose business would likely love nothing more than to start building more homes, said homeowners need to give themselves time to work out of the debt they are in from buying at the peak of the boom. In the more normal days of homeownership, when people bought a home with the intention of staying in it for a while rather than trying to cash out in two years, “some amount of being underwater is part of how it works.”
 
Perhaps the biggest failure the government has achieved in its efforts to stimulate the economy came with how it handled the much publicized $8,000 first-time homebuyer credit.
 
“Not a day goes by without someone asking about the $8,000 credit,” Rockefeller said.
 
Most on the panel agreed the credit was good in theory but needs to be made available to homebuyers on the front end of the purchase rather than after the transaction.
 
“It’s on the wrong end of the deal,” Rose said. “You have to buy the house first to get the tax credit.”
 
That first step of buying the house is the big hurdle.
 
That money would be better spent if it were made available for part of the down payment for a home purchase, Kotarides said.
 
“Where the rubber meets the road is at the closing table and that’s where the money needs to be spent,” Kotarides said. “It’s one of the things in which politics got in the way of good policy.”
 
Much of the most emotional discussions were centered on what Koch called a “crisis of confidence.”
 
Rose and Kotarides in particular, defended Hampton Roads, drawing applause from the crowd. They argued that gloomy national headlines are feeding lack of consumer confidence, and that local market activity suggests Hampton Roads shouldn’t necessarily be portrayed as part of that larger picture.
 
“We continue every day to shoot ourselves in the head and the foot by putting what we put in the press,” Rose said.
 
Compared to places like California, Nevada and other troubled areas, “we’re light years away from what’s going on in other parts of the country,” Kotarides said. “That message will help confidence.”
 
Koch said the region is doing better than other parts of the country, but warned that government policies can’t reaffirm consumer confidence.
 
“Building another bridge isn’t the answer,” he said, referring to the government’s plan to use stimulus money to improve infrastructure in a New Deal-like way.
As a consumer, Koch said, “I want to know my bank account is insured. I want to know my insurance company is not going belly up. I want to know the financial statements I receive are correct. I want to know my pension and 401(k) won’t disappear.”
 
His remarks won supportive nods from the crowd.