In an effort to unearth the NAHB's perspective on the most recent version of the stimulus package and probe the details and controversy associated with the withdrawal of NOL support--as well as discussion around whether the NAHB is representing the interests of all its constituents, Big Builder senior editor Lisa Marquis Jackson spoke with executive vice president and CEO Jerry Howard on Thursday, June 26.

BB: As the details of this latest version of the stimulus package are coming to light, I am hearing some surprise and disappointment from some members of the home-builder community. I'd like to clarify some of these points and get your feedback on some of these issues. My understanding is that this latest version offers an $8,000 tax credit incentive to home buyers. That's a $500 increase over its previous incarnation, correct?

JH: If that is in fact what's in there, that's correct. I haven't seen anything in writing. I have heard things like what you are saying, but I can't verify because I haven't seen anything in writing.

BB: There are also some caveats, and I want to clarify. There are two distinctions to make. Number one, this is for first-time buyers only.

JH: Right

BB: It's not a pure credit. It's a no-interest loan, in effect, because it has to be repaid.

JH: That is correct as well.

BB: The timeframe: paid back in a four- to five-year period?

JH: No, it's a longer time than that, I think.

BB: Do you know specifically?

JH: Again, I don't have anything in writing, but my understanding was it was more like a 15-year timeframe.

BB: The previous version was only for buyers purchasing a new home, but this latest version is for the purchase of any home--new, existing, foreclosure.

JH: That's my understanding as well.

BB: That might be considered a step back for new construction. It could be argued that it is an effective way to spur demand because it is all inventory. But would you agree or disagree that the previous version might be a more direct incentive to the NAHB membership?

JH: The previous version was for foreclosed or new, not just new homes. So this really expands it to all existing homes. Would we have liked it to be just new homes? Sure. But that was not a political reality given the situation with so many foreclosures. It was never on the table other than when we suggested it. No one embraced it. Having said that, our economists look at the inventory overhang of almost one year now as being a significant hurdle to getting the industry back on its feet. As such, this credit, which will generate demand and will take inventory off the books, will be an extremely successful simulative concept. Buyers don't really distinguish that often between new and existing. They choose a house based on a whole variety of factors. Moreover, when you are talking about the move-up market, they have to sell their house in order to move up. First-time buyers buy more existing housing than they do new housing, so from our perspective, this is better than a good concept. It's not perfect, but it's very good.

BB: There is a $150,000 income limitation as a part of this, correct?

JH: Correct.

BB: So, if you look at a market that, even in today's market, has affordability issues to contend with--is that limitation going to be a hurdle to deal with in some of those markets, which include the hardest hit ones?

JH: In some markets, it will be difficult to deal with. In others, $150,000 is a pretty substantial income limit, and it will be OK. This was part of the political reality of the situation.

BB: When you look at the $8,000, how does that affect banks? Are you hearing anything about whether it's considered part of the equity position for them when they are underwriting people? How does it factor in?

JH: What I am hearing is that, as this thing gets debated, they will clarify how they want to monetize the thing--either in actual legislative language or in a colloquy on the floor of the House or the Senate. But that will become clear.

BB: Do you think there will be any backlash from consumers when they understand that this isn't really a credit, it's a loan? Is there a fine line in how this is presented to them? Home builders right now have so many people skeptical anyway.

JH: Well, let me ask you this: When you were buying your first home, if the federal government offered to give you an interest-free $8,000 loan that you didn't have to repay for 15 years, how would you have felt about it? If someone would have given it to me--even if it was my parents, let alone the federal government--I'd have thought it was a pretty sweet deal.

BB: When you look back on prior downturns, what were previous credits? Was there one during the Reagan administration?

JH: No, there was a tax credit during the Ford administration that I think was either $1,000 or $2,000. That was just for the sale of a newly-constructed home. It was the last time this concept was put in place.

BB: Well, I was trying to look back and see how long ago that was and if the increase reflects the inflationary value of time.

JH: I don't think it's fully indexed for inflation.

BB: One of the hotly-debated issues in all of this was the inclusion of NOL. My understanding is that, from the beginning, the membership was divided. And a lot of people speculate that's because smaller builders didn't understand it well, and as they came to understand it better and realized it had benefit to some of them as well, more were getting on board. There is controversy over whether that [provision] had to be given up. I'd like to hear your perspective on that.

JH: Well, let me dispel one inaccuracy. NAHB's membership, saying that they rallied around it when they understood it, is a given. It's the way anybody is about any issue. Once we explained the concept to the members, our membership was fully engaged and very supportive of NOL. Unfortunately, there was a significant mixed message sent to Capitol Hill about the industry as a whole and the weight we were putting on NOL. It was a divided message that generated a lot of negative press. I would have preferred to have lobbied this issue in a more subtle way from the get-go. A good example is the tax credit. We kept it very subtle and beneath the surface until it became fully imbedded into the bill and it had such broad and deep support that we were starting to argue not about the concept but over the parameters. NOL was made a very public issue very early on, and that was a mistake. Now, when that mistake was made, what did it do? It put us in a position in the housing industry of having to defend NOLs when others would have benefited. Financial services and the manufacturing sector, those guys were able to sit back, hope that this thing got done, and lobby quietly while we took all the arrows. There were such negative politics that this started to lose it's support, particularly in the House. At the same time, remember, there are rules for any tax bill it enacts. Those rules say, for all the foregone revenue that the government is letting go, you have to have an offset that raises revenue. So it has to pay for itself. The House put a $10 billion limit on the size of this package. So now you have NOLs that are losing political strength and being beaten to death by, in my view, egregious errors by external lobbyists. And you have the tax- credit concept that is gaining momentum. And the House comes to us and says, "We can't do both. They are too expensive. Which is better for the industry?" When that happened, we sat down with our policy people--our economists, our gurus, even marketing people--and asked: What is going to help us the most? [The] NOL provision helped builders capitalize their businesses and, as a short-term band-aid, would be and still could be very effective helping those in need of capital. The tax credit helps us look forward. It helps stabilize housing prices, it helps drive consumers to the marketplace, and it helps the industry get its footing back. When you have to make that choice, it's a no-brainer.

BB: I understand you went to Scottsdale during the Builder 100 meeting. That's when you met with the High Production Builders Council CEOs, and that's when a vote was taken. The decision was made that, if you had to back one or the other, to back the tax credit. Then, I understand a letter was sent to the Hill that stated the stance of NAHB, no longer supporting NOL and asking for an increase in the tax credit. What is the gap in time between the Builder 100 meeting and when that letter was sent?

JH: Builder 100 was in early May, and the letter went out two weeks ago.The reason that letter had to go out in the first place, stating unequivocally what NAHB's position was, is because there was a mixed message from the external lobbyists. We wanted to clarify that those people don't represent NAHB institutionally.

BB: Was there an agreement that you came away from Builder 100 with? Your plea was, "Back down on NOL, everyone rally behind the tax credit, and we can get a substantial increase." I even heard specifics of a 12,000 pure tax credit, versus one that had to be repaid.

JH: Given the success I have had in my career, understand it would be folly for me to make promises I can't keep. I don't control it. What I told CEOs is as follows: I have made my living as a tax lobbyist for about 30 years now. I have never succeeded in getting everything that principals wanted, but I have always succeeded in getting priorities. They needed to tell me their priority, and I would do my best to get it. There was discussion of having recapture provisions removed from the credit. There was discussion of having the credit made as valuable and highly priced as possible. But I couldn't make a promise. I did tell them that if we keep going down this road of mixed messages, that if the one person who represents this industry isn't going to be in charge of this, what will happen is the same that has happened in the past to the housing industry. We'll end up standing in a circle and shooting each other, and we'll get nothing. I implored them to let the NAHB take the lead and lobby on behalf of the industry.

BB: When you talk about recapture provisions and all the machinations, did your discussions get detailed enough where there was a list of priorities? As in, 'this is what we would go for first, but we would sacrifice A in order to get B'?

JH: We didn't put anything in writing. The situation has been so fluid and the negotiations so variable that we have adjusted on the fly. Meaning I take the temperature of the senior officers of NAHB, the other NAHB leadership, and I have been in constant contact with the CEOs of the High Production Home Builders [Council]--obviously not all 25, but we have had several calls where they have been all invited, and there is an oversight group of three or four that have been selected to be the hands-on guys. As priorities shifted and negotiations morphed, we have been in constant contact in terms of setting priorities.

BB: I am sure it comes as no surprise that there has been controversy about whether NAHB can truly represent the small members and serve the needs of the biggest companies. How do you comment on that?

JH: The policy issues impact the builders across the industry. They impact bigger builders at higher dollar amounts, but they affect small builders at the same percentages. I have not seen nor in any way encountered any conflict between big and small, specifically on policy issues.

BB: You are passionate about this outside lobbying group that was put in play. There have been insinuations that you had a personal vendetta against the big builders. In order to prove a point that the industry needed a united front, perhaps they weren't given all the valid information they needed to make these decisions. How do you respond to the idea there was personal side of all this to you?

JH: I'm not sure whether to laugh or get angry. These are people I have worked for for 20 years. I wouldn't have been employed in NAHB for 20 years if that were true. The High Production Builders Group has been a part of NAHB for years, and since I have been the CEO, their visibility and importance and activity inside our organization has increased exponentially. What I have tried to do is make sure NAHB represents the interest of all builders. I will put my tax lobbying experience on the line against virtually anybody in town. There are a couple of people who are probably better, but they aren't exponentially better than me. When these outside lobbyists came in and, in my opinion, totally mishandled the NOL issue from the outset, I did tell the High Production Home Builders that we were the best organization to represent them, and we would get the job done better than anyone else could. I still stand by that.

BB: For a while, there has been talk about the biggest of the big splintering off and creating an organization that represents them independently. Obviously there are political implications to something like that, but there would be economic implications to NAHB, too. What do the publics represent in terms of dollar value in membership dues, as one way to slice it, to NAHB?

JH: The dues structure--most of the publics or high production members are members at two different levels. First there is the HBA in the jurisdiction where they are doing business. That's for a variety of reasons. Then it was decided 15 or 20 years ago, because of their unique way of doing business, we should form a council for them. It was an offshoot of that idea, and there are separate dues that are based on number of units to be a member of High Production Home Builders Council. So if you are asking me: If they went out on their own, would it affect NAHB financially? Of course it would. It does anytime we lose a member. If the question is intended to ask: Would I skew our representation in order to protect our finances? The answer is absolutely not.

BB: It's intended to determine how much they contribute to NAHB in a dollar value. Is there any point I have missed that you want to make?

JH: Virtually every industry that is represented in Washington, which is probably every industry in America, is successful when they speak with one voice and there is a unified, solid message. Virtually any industry fails in Washington when they have more than one principal spokesman representing them on the Hill because it's easy to divide and conquer that way. Our industry almost made that mistake. The wisdom of the High Production Builders Council and its leadership saw what was going on, and they changed it. In the end, when this bill is enacted, they will be the better for it.