The Obama Administration created a plan to reduce foreclosures by modifying mortgage targets for up 4 million homeowners. The program was announced on February 18. The key provisions include subsidies to lenders, including bond investors to help lower a borrower's housing payments to 31% of their income. Bondholders do not like the idea that incentives would be given to loan servicers, the industry middlemen who decide which loans are to be reworked. Servicers can get $1000 for each modified loan and an additional $500 for every loan changed before borrowers fall more than two months behind, and $1000 annually for as many as three years of on-time payments.

So far six servicers have signed up including JP Morgan Chase & Co (NYSE: JPM) and Wells Fargo & Co (NYSE: WFC). Government payments to these companies may total $9.9 billion.

In a recent interview, CFO Joel Rassman of Toll Brothers (NYSE: TOL), the luxury home builder active in 50 U.S. markets, argued that the housing market is influenced much more by consumer confidence and less by specific economic policies such as interest rate changes by the Federal Reserve. Without making personal political statements, Mr. Rassman argued that the housing market will pick up when consumers feel more inspired by their government, feel more confident in the government's policies and its ability to get things done. Mr. Rassman stated that the average housing market slump is generally about 18 months in duration. Consumer confidence dropped dramatically after Hurricane Katrina due to the government's perceived inability to deal with that situation. Mr. Rassman places less importance on the federal budget deficit and mortgage interest rates.

CFO Rassman tried to make the case that the current slump in the housing market is different from previous slumps. The current slump is due to an oversupply of housing rather than job losses, higher interest rates or a slowing economy. He forecast that the housing market will pick up in the spring, right about 18 months after the slump began. Housing stock investors may well share Mr. Rassman's guarded optimism. Just before Toll Brothers released 1Q 2007 figures, investors bid up Toll Brothers options to several dollars above the price of the stock, indicating they think the stock, currently trading at $29.48, will go higher.

Toll Brothers 1Q 2007 figures were, as expected, not good. 1Q 2007 net income was $54.3 million, one-third of 1Q 2006 record net income of $163.9 million. 1Q 2007 total revenues were just over $1 billion, down 19% from 1Q 2006. The number of signed contracts in 1Q 2007 was down 14% from 1Q 2006. The number of buildable lots Toll Brothers controls nationwide is down 26% to 67,500. Despite all the downward pressures in the housing markets, Toll Brothers still plans to build more than 6,000 houses in FY 2007.

Mr. Rassman firmly believes that declining home prices are building up demand for homes. As soon as consumers think the market has bottomed out, which Mr. Rassman argues will be by mid-year, home buyers will begin to enter the market in large numbers as they will not want to wait until it is too late.