On the afternoon of Aug. 20, President Barack Obama stepped up to a podium in the White House briefing room for the first time in two months. He had taken criticism from reporters and Republican political operatives for not holding a press conference while his GOP presidential opponent, former Massachusetts Gov. Mitt Romney, took questions from his traveling press corps.
About nine minutes into the 22-minute conference, Obama received this question from Jake Tapper, ABC News senior White House correspondent:
“With the economy and unemployment still the focus of so many Americans, what can they expect in the next couple months out of Washington — if anything — when it comes to any attempt to bring some more economic growth to the country?”
Citing historically low interest rates and a “housing market that is beginning to tick back up, but is still not a all where it needs to be,” Obama, in response, urged Congress to pass a home refinancing plan he proposed eight months earlier.
“There are a lot of Americans still underwater because housing values dropped so precipitously and they’re having trouble refinancing,” Obama told Tapper at the press conference. “We’re going to be pushing Congress to see if they can pass a refinancing bill that puts $3,000 into the pockets of the average family. That’s a big deal. That can be used to strengthen the equity in that person’s home, which would raise home values. Alternatively, that’s $3,000 they can spend on a new computer or clothes for their kid going back to school.”
Two days later the administration dispatched Housing and Urban Development Secretary Shaun Donovan on a multistate trip to promote three Democratic Senate bills the secretary said would complete Obama’s refinancing initiative. (Back in May, Donovan predicted the bills would gain quick bipartisan support.)
Perhaps Tapper should have extended the timeline of his question and asked what homeowners should expect in not just the next two months, but the first year of a possible Obama second term — considering the chances of his home refinancing initiative gaining passage-worthy bipartisan support in an election year are dubious at best.
HOUSING STRATEGY
Obama campaign spokesman Adam Fetcher tells HousingWire the president has a cogent housing strategy.
“The administration has put forward a plan to help more responsible borrowers refinance their mortgages while taking concrete steps to help families stay in their homes, revitalize the communities hardest-hit by the housing crisis, and reform the mortgage lending market to better protect both consumers and taxpayers,” Fetcher says.
Obama’s amalgamation of housing programs — Home Affordable Modification Program, Home Affordable Refinance Program, second-lien write-downs, forbearance, hardest-hit funds, Federal Housing Administration short refinance and loss-mitigation efforts — is a multipronged attack on the mortgage crisis. Although programs such as HAMP have not met expectations, the president’s overall game plan has fared better.
“The reality is collectively all of them had a very significant impact,” says David Stevens, chief executive of the Mortgage Bankers Association. “I think we have to look at the broad set of solutions that were provided and recognize that many millions of Americans have been helped. The housing market by most experts’ views stabilized, but we still have pockets of significant concern, particularly in those hardest-hit locations.”
The housing affliction is one of President Obama’s most difficult economic obstacles, represented by the $689 billion in second-quarter negative equity that has buried itself into the nation’s economic foundation.
The sickness, however, is contained. In its latest housing scorecard, the Obama administration touted an improving market, citing CoreLogic figures that show the number of underwater borrowers fell 11% from 12.1 million, or 25.2% of all homes with a mortgage, at the beginning of the year to 10.8 million in the second quarter, or 22.3% of homes.
The sideways trajectory of home starts, prices and sales since mid-2009 after free-falling for nearly three years is “attributable to the administration’s aggressive response and also the Federal Reserve’s quantitative easing, which has brought down mortgage rates,” Mark Zandi, Moody’s chief economist, tells HousingWire. “But it’s also fair to say the administration’s policies have fallen short of even their expectations.”
The Obama campaign points out that its push to expand access to refinancing is an idea with aisle-transcending support. In October 2011, shortly before the expansion of HARP, Republican Senators Johnny Isakson, R-Ga., Richard Burr, R-N.C., Scott Brown, R-Mass., and Saxby Chambliss, R-Ga., signed on to a letter in which Sens. Barbara Boxer, D-Calif., and Robert Menendez, D-N.J., urged federal regulators to eliminate loan-to-value limits and loan-level price adjustments. Even top Romney economic adviser Glenn Hubbard put forward a plan in March that is broadly similar to the ones Senate Democrats introduced.
SECOND-TERM PLANS
President Obama’s legislative housing plan heading into a potential second term builds on the HARP expansion, which led to nearly 423,000 Fannie and Freddie mortgages refinanced in the first six months of 2012, more than all of last year, according to the Federal Housing Finance Agency.
The administration was slow to embrace refinancing as a solution to the problem, eventually overcoming its reticence in late 2011. Zandi suspects a concern about mortgage rates rising because of frightened investors suffering from refinancing gave birth to the hesitation. That, he said, would defeat the purpose of a mass refinancing program.
Stevens sees an evolved and learned administration. “HARP 2.0, which has had extraordinary success, is a lesson that I hope the administration takes into the next term if they’re reelected,” he says. “The recognition that programs also need to be made in a participative way, collaboratively with industry. HARP 2.0 clearly reflected that collaboration.”
The president is working to transition foreclosed properties sitting on government books into rental housing, the Obama campaign says, to revitalize communities hit hard by the foreclosure crisis and meet the pressing need for affordable rental housing.
The FHFA launched a pilot program to sell about 2,500 Fannie Mae properties to qualified investors. “This marks the first of a series of steps that the FHFA and the administration will take to develop a smart national program to help manage REO properties,” the White House said in February when the program launched. Real estate investment firm Pacifica Companies is the program’s first winning bidder, purchasing 699 Fannie Mae properties in Florida. The FHFA will announce the winning investors for properties in other areas upon closing of the transactions throughout the rest of the year.
John Taylor, chief executive of the National Community Reinvestment Coalition, says the president needs to focus more on foreclosures going into a second term. “Foreclosures that are waiting in the wing are going to continue to haunt our economy,” Taylor says. About 1.3 million homes, or 3.2% of all homes with a mortgage, were in the national foreclosure inventory in July, down from 1.5 million a year earlier. “It wasn’t his fault, and yes, he made several efforts to address it, but I think he needs to get much more aggressive at keeping people who are still working in their homes.”
For homebuyers, Obama proposes a mortgage lending standard to curtail the likelihood of future foreclosure, transforming into reality his Homeowner Bill of Rights, a set of criteria he says will ensure borrowers and lenders play by the same rules. Topping the list is the Consumer Financial Protection Bureau’s crusade to create clear, straightforward disclosure forms that will be used in all mortgage applications to replace overlapping and confusing forms that contain hidden clauses and opaque terms. The bureau is accepting comments from the public until election day on “easier-to-use” forms scheduled to be released in January.
The bill of rights also requires lenders to disclose mortgage fees and penalties. The CFPB will release final rules in January. The administration, Obama’s campaign says, will “make sure that all those with government-insured loans have these protections and is working with regulators to expand them to all borrowers.
GSE REFORM
President Obama must address a variety of policy issues surrounding the future state of the mortgage finance behemoths Fannie Mae and Freddie Mac, who back 90% of mortgages. The key is ensuring regulations are implemented in such way that allow the expansive inter-related network of domestic and international financial institutions to manage the new rules without impeding the steady flow of mortgage credit and capital to the nation’s housing system.
“The administration is working on the future of the GSEs,” Stevens notes. “Availability of credit for qualified Americans is going to be the greatest challenge on a go-forward basis if we don’t address this layering of risk on the financial intermediaries that we depend on to extend credit.”
The difference between Obama and Romney lies not so much with near-term housing policy, but with how they approach mortgage finance reform, specifically with what portion of the market would receive a government backstop. Under an Obama administration, Zandi says, about two-thirds of a normalized mortgage market would draw government backing, which is the average since the Great Depression.
“In a Romney administration, if you told me it was about one-third, I’d say that’s about right, maybe even lower than that.” And in that case, the mortgage market ultimately looks different as the 30-year fixed-rate mortgage becomes less common in the future.
The Treasury’s February 2011 white paper that describes three scenarios to replace Fannie Mae and Freddie Mac sits in neutral. The first option is a completely privatized system of housing finance, with government insurance limited to the Federal Housing Administration, the U.S. Department of Agriculture and the Department of Veterans’ Affairs. An Obama presidency would likely support the second option, which offers a plan similar to the first. In that plan, a backstop mechanism is in place to give homeowners access to credit during a crisis. In the third scenario, the government continues to leave the mortgage market to private players outside of the FHA and other programs, but offers reinsurance for certain mortgage-backed securities.
“We’ll get some clarity with respect to the future of the mortgage finance system in the next four years,” Zandi says. “That’s a key policy decision for the next president that has a high probability of getting done.”
However, absent a near-term requirement for more Treasury capital contributions to Fannie and Freddie, improved second-quarter financial results at the GSEs could ease pressure on Congress and the next administration to pursue far-reaching GSE reform in 2013.
Julia Gordon, director of housing finance and policy at the Center for American Progress, says continued inaction means decisions could be made by exigencies instead of with a coherent plan on how to deploy the government guarantee — including whether to deploy it.
“How will GSE reform look? Who will be advantaged by it? And how do we ensure access and affordability for a broad spectrum of potential homeowners?” Gordon asks. “To me, either administration needs to grapple with that immediately at the start of the new term.”
PROMISES KEPT AND BROKEN
President Obama followed through on many housing-related promises he made during his campaign.
He expanded the housing vouchers program for homeless veterans, provided homebuyers with clearer standards for understanding mortgages and increased the supply of affordable housing.
And under his presidency, 49 states agreed to a mortgage servicing settlement brokered with Bank of America, JPMorgan Chase, Wells Fargo, Ally Financial and Citigroup that the banks pay $25 billion for allegedly signing foreclosure documents en masse without a proper review of the loan file and evicting homeowners while in the modification process. The Obama administration, specifically Donovan, coaxed California Attorney General Kamala Harris, who was not satisfied with the original dollar amount, back to the negotiations committee. Without her, the total would have been closer to $20 million, says Iowa Attorney General Tom Miller, who led the negotiation talks on behalf of the AGs.
However, other campaign promises remain unfulfilled. Obama never implemented a mortgage interest tax credit for nonitemizers and never repealed provisions of the Chapter 13 bankruptcy code that prohibits bankruptcy judges from modifying the original terms of home mortgages, known as cramdown and something that Zandi said homeowners can forget about at this point.
Fetcher, from the Obama campaign, contends that Romney “has zero proposals to help responsible families refinance or stay in their homes. The president believes that responsible homeowners should not have to sit and wait for the market to hit bottom to get relief when there are measures at hand that can make a meaningful difference.”
Fetcher is referring to the Republican presidential candidate’s October 2011 statement to the Las Vegas Review-Journal that the national foreclosure process should be allowed to “run its course and hit the bottom.”
Analysts agree that the industry is now a tailwind for a weaker, broader economy. Housing economists from Joseph LaVorgna at Deutsch Bank to Michelle Meyer at Bank of America cite a better alignment of supply and demand. Several years of extraordinarily slow construction, slow processing of foreclosures and reduced housing turnover is significantly reducing the inventory of homes for sale.
“Housing turnover has fallen to a historic low, particularly for voluntary turnover (not due to foreclosure),” Meyer says. “Of course, a reduction in turnover not only translates to less supply, it also curbs demand.”
The MBA’s Stevens says the president, if elected for a second term, will try to make certain that his legacy reflects a recovering national economy, an accomplishment that can’t happen without a thriving housing market.
“That’s fundamental,” Stevens says. “And it’s something everybody recognizes in a greater way today than they may have four years ago.”
