South Florida business leaders are generally upbeat about the federal government’s proposal to buy up to $700 billion in bad debt from ailing U.S. banks and institutions, with many predicting the effort would speed the recovery of the region’s battered housing market.”Certainly, [the bailout] is giving banks and other institutions a sense of relief,” said Ron Shuffield, president of Esslinger Wooten Maxwell, a large real-estate brokerage firm based in Coral Gables. “The financing markets were just frozen.”
The bailout plan is in flux in Congress, but some would like to see quick passage. ”We need action, not talk,” said Martin Schubert, head of European Inter-American Finance Corp. in Miami. “The longer they wait to approve the Paulson plan, the worse the fear gets and the greater the danger gets of an all-out credit crisis.”
A key aim of the rescue plan is to stabilize U.S. banks so they will continue to extend credit to businesses and individuals to keep the economy flowing. By moving bad debts off their books, the banks would be in position to make new loans and have more confidence they would get paid back.
The U.S. housing market is in the midst of a credit drought, with many potential home buyers ready to purchase but unable to get mortgage financing.
Most financial institutions are requiring a 20 percent down payment on a condominium, compared with the 5 percent to 10 percent that used to be typical, according to Shuffield.
`A CREDIT PROBLEM’
Even though the slide in home prices has made South Florida more affordable to home buyers, he said, with 44 percent of the inventory listed at below $300,000, financing is so tight that many would-be home buyers can’t get a loan.
”Anything they do that will stabilize credit markets for home financing is a positive for us,” Shuffield said. “Our problem today is more of a credit problem than a real-estate value problem. We can’t get enough financing for people who want to buy.”
Craig Studnicky — president of International Sales Group, an Aventura-based condominium marketing firm — said he hopes the proposed bailout will provide the liquidity needed for real-estate transactions to proceed.
”Every broker and developer will tell you the biggest issue in 2008 is a lack of mortgage financing,” Studnicky said.
While he said that in the go-go days of 2004 and 2005 lending standards were far too easy, with almost anyone qualifying for a mortgage, “this year the pendulum has swung to the other side.”
Financing requirements for foreign buyers have become particularly tough. ”Every one of my sales offices has seen a significant increase in traffic: more people coming out to see real estate” — especially Venezuelans and Mexicans, he said. But lenders are requiring hefty down payments, quashing many deals, Studnicky added.
Ken Thomas, a Miami banking consultant and economist, agreed the massive government bailout could be good news for South Florida’s housing downturn.
”It could mean we see a bottom [in the housing market] sooner and not as deep,” Thomas said. “Now we will have a place where financial institutions could put bad loans instead of waiting for vulture funds or hedge funds to buy them.”
CONCERN
Some local business leaders are worried about the tremendous financial burden the U.S. government is shouldering in the bailout.
David Brandt, interim executive director of the housing finance authority of Palm Beach County, is concerned the Wall Street bailout plan could heighten inflation or dramatically “reduce the Fed’s ability to stave off another financial crisis that isn’t directly related to these issues.”
Richard Barkett, CEO of the Realtors Association of Greater Fort Lauderdale, also has some reservations: “I have a bad feeling it’s going to take many, many years to pay for this thing. But it’s got to be done.”
`CHAOS’
Armando Codina, chairman of Flagler Development Group, agreed the price tag is large, but he said government intervention is the best option. “Not to react would be much more costly. There would be chaos that would spill over to Main Street.”
Even outside the real-estate sector, many local business executives recognize the upside of the government rescue.
Victor Mendelson, president of the Electronic Technologies Group of Heico, a manufacturer whose clients include airlines, cargo carriers and defense contractors, said the bailout plan can only benefit his company, though not directly.
”It’s a question of how it affects the broader economy and how that affects our end-market,” Mendelson said. “If the economy benefits and there is more liquidity pumped into the economy, then consumers and businesses would have more money to spend, and that can benefit us.”
HELPING HOMEOWNERS
Some think the rescue package should be even broader, with provisions to help homeowners facing foreclosure — a measure some key Democrats in Congress want.
‘Two things they are pushing in Congress — capping CEOs’ salaries and providing more resources for families in foreclosure — are appropriate, and I think it’s what the public wants,” said Arden Shank, president of Neighborhood Housing Services of South Florida, an agency that provides counseling and financial services to help people buy homes. “It’s a little hard to swallow when a company goes under and the CEO walks out the door with millions of dollars.
“We’re seeing hundreds and hundreds of families on the other side of the deal — families in foreclosure. We’re trying to make sure families have options.”
PROTEST
ACORN (the Association of Community Organizations for Reform Now), which advocates on financial issues for low- and middle-income individuals, plans a protest rally Tuesday at the Miami Federal Reserve Bank in Doral to urge Congress to include such homeowner-rescue provisions in the bailout package.
”Wall Street created and financed the tidal wave of predatory mortgage products that have led us directly to this crisis,” said Antonio Cruz, ACORN’s leader in Florida.
Miami Herald business writers Scott Andron, Jane Bussey, Beatrice Garcia and Ina Paiva Cordle contributed to this report.
