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In Wake of Housing Bust, Obama Administration Moves Forward
Wednesday, August 18, 2010 at 4:45 am
- 36 Comments
Yesterday, the Treasury Department held a conference on the “Future of Housing Finance.” The summit — drawing together major governmental, housing-industry research and private-industry figures — came as the Obama administration develops a plan to overhaul Fannie Mae and Freddie Mac, the government-sponsored enterprises that have required a $150 billion taxpayer bailout thus far. The participants came from a wide variety of viewpoints. But all recognized that the days of the government boosting homeownership for all are over. Mark Zandi, the chief economist for Moody’s Analytics, put it this way: “Not everyone can or should have a single-family home.”
[Economy1] That stands in stark contrast to the policies of the Bush administration, and administrations prior to it. Eight years ago, President George W. Bush told a crowd in Atlanta, Ga., “I do believe in the American Dream. I believe there is such a thing as the American Dream. And I believe those of us who have been given positions of responsibility must do everything we can to spotlight the dream and to make sure the dream shines in all neighborhoods, all throughout our country. Owning a home is a part of that dream, it just is. Right here in America if you own your own home, you’re realizing the American Dream.”
Today, such a line of argument sounds little better than absurd. In the 2000s, innovations in housing finance let many Americans with low incomes or tarnished credit purchase a home. But too often, that home fell far outside their price range. Often, lenders offered them contracts for no money down, with complicated fees and variable interest rates. Banks and financial companies encouraged homeowners to take out products like home-equity loans, designed to encourage homeowners to see homes as piggy banks rather than a place to live.
When the housing bubble burst, those homeowners — millions of them — could not make their mortgage payments. Many ended up underwater, owing more on the mortgage than the home was worth. That meant they could not sell the house to move somewhere cheaper — or somewhere with more jobs — without owing the bank a check. The second liens made the problem worse, leaving families more in debt. Banks repossessed 860,000 homes in 2008, 918,000 in 2009 and are on track to repossess more than 1 million this year. For the millions of families who have lost their homes, dreams turned to nightmares.
In the wake of this housing disaster, federal policymakers are seeking to keep the housing market afloat — meaning encouraging people to buy houses — while trying also to reform how housing finance works, pulling the government away from backstopping the entire mortgage market. The conference touched on myriad subjects — most notably, what to do with Fannie Mae and Freddie Mac, currently backing about three-quarters of home purchases. But it also touched on how to separate the goal of promoting homeownership for low-income Americans — a goal itself under question — from broader questions about the role of government in housing finance.
At the Treasury summit, Ellen Seidman — an executive vice president at ShoreBank, a community-development focused bank holding company — highlighted the housing woes of low-income Americans after the bubble burst. She noted that some 18.6 million households spend more than half of their income on housing — one in four renters, and one in eight owners. Just a quarter of households eligible for federal assistance for rent receive that income. And in most places, families need multiple minimum-wage jobs to meet a standard rental price.
She argued that the government needs to remain involved in helping qualified low-income families receive home loans. And she argued that the Dodd-Frank financial regulatory reform bill and ongoing consideration of Fannie and Freddie might actually kill efforts to help low-income families access home loans, “because they’re ridding the market” of institutions providing liquidity to that segment of the market.
Treasury Secretary Timothy Geithner agreed. In a prior speech, he noted: “We need to delineate more clearly the public policy goals of how best to promote reasonably priced and stable mortgage costs for most Americans from how best to provide access to affordable housing for lower income Americans.”
At one of the conference’s panels, participants noted that the government needs to scale back. “The government’s role in housing needs to be pulled back quite significantly, certainly compared to where it is today, but also compared to where it was prior to the crisis,” Zandi argued. But he noted the plight of low-income homeowners. “When housing values are falling, nothing works well in our economy. The home is still the largest asset on most people’s balance sheet.”
Lew Ranieri, the “godfather” of mortgage finance and a former Wall Street executive said, “a need to expand homeownership” drove the crisis, but “it was much more the profit motive than any political motive to expand homeownership” that led to the proliferation of bad mortgage products. To that end, he argued that the Dodd-Frank financial regulatory reform law makes a major omission in not addressing second liens. He argues the government needs to regulate “home as shelter, not as a credit account.”
Bill Gross, the cofounder of PIMCO and a major bond investor, believes that “full nationalization” of Fannie and Freddie will be necessary: That the government is the housing market, and needs to remain so. “To suggest that there’s a large place for private financing in the future of housing finance is unrealistic,” he said. “Government is part of our future. We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.”
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36 Comments
Pingback posted August 18, 2010 @ 4:53 am
[...] full post on The Washington Independent advertising Share and [...]
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[...] and defense industries? Take our quiz and find out. Phase Out Fannie & Freddie? … In Wake of Housing Bust, Obama Administration Moves Forward The Washington [...]
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[...] In Wake of Housing Bust, Obama Administration Moves ForwardThe Washington IndependentShe argued that the government needs to remain involved in helping qualified low-income families receive home loans. And she argued that the Dodd-Frank …US role at heart of housing debateWashington PostCoping with Fannie and Freddie's collapseThe Associated PressMortgage Market Knocked By 'Mega-Refi' TalkWall Street JournalNPR -Kansas City Star -Huffington Post (blog)all 1,237 news articles » [...]
Pingback posted August 18, 2010 @ 6:06 am
[...] In Wake of Housing Bust, Obama Administration Moves ForwardThe Washington IndependentThe summit — drawing together major governmental, housing-industry research and private-industry figures — came as the Obama administration develops a …Obama Seeks New Design for Housing, Fannie/FreddieABC NewsMortgage summit brainstorms ways to revamp financingKansas City StarFannie Mae and Freddie Mac reform: Would it add $5 trillion to US debt?Christian Science MonitorThe Associated Press -Human Events (blog) -Reutersall 1,237 news articles » [...]
Pingback posted August 18, 2010 @ 6:57 am
[...] (press release) Mortgage Market Knocked By 'Mega-Refi' Talk Wall Street Journal The Washington Independent -Washington Post -The Associated Press all 989 news articles » Tags: [...]
Trackback posted August 18, 2010 @ 7:10 am
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[...] reforming housing finance, there remain more questions than answers — a fact highlighted at yesterday’s “Future of Housing Finance” conference at the Treasury Department. [...]
Pingback posted August 18, 2010 @ 11:35 am
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[...] In Wake of Housing Bust, Obama Administration Moves Forward “Yesterday, the Treasury Department held a conference on the “Future of Housing Finance.” The summit — drawing together major governmental, housing-industry research and private-industry figures — came as the Obama administration develops a plan to overhaul Fannie Mae and Freddie Mac, the government-sponsored enterprises that have required a $150 billion taxpayer bailout thus far. The participants came from a wide variety of viewpoints. But all recognized that the days of the government boosting homeownership for all are over. Mark Zandi, the chief economist for Moody’s Analytics, put it this way: “Not everyone can or should have a single-family home.”” [...]
Comment posted August 18, 2010 @ 11:48 am
Bill Gross, the cofounder of PIMCO and a major bond investor, believes that “full nationalization” of Fannie and Freddie will be necessary: That the government is the housing market, and needs to remain so. “To suggest that there’s a large place for private financing in the future of housing finance is unrealistic,” he said. “Government is part of our future. We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.”
Pingback posted August 18, 2010 @ 1:01 pm
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Comment posted August 18, 2010 @ 3:34 pm
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Comment posted August 18, 2010 @ 4:06 pm
Zandi – you are a genius in my opinion; but a home-ownership expert you are not. Nothing like being part of the neighborhood and having a stake in your community. Trained hundreds if not thousands of 'want to be homeowners' over the years (until 2000 when there was no longer any sense of reason as to mortgage finance) and the success rate was excellent – with no or little down payment – of course the buyer could afford the payment and the loans were fully amortized fixed rates with no surprises. Unfortunately it appears you support going from the known long term fixed rate loan to the unknown short term / Adjustable loan – like they are stuck with in Great Britain etc – where the owner must pray that they can afford whatever future rates may increase to when it comes time to refinance – just like the folks who lost there homes during our great depression. Did this Crisis cost the average USA Citizen access to sustainable Home-ownership under the proven long term fixed rate loan and force us to become gamblers betting our future on the banking industry and interest rate volatility? Clearly this path will push the average family – and their children, and children's children, out of the home-ownership market for good. The rich shall be the only ones to own property – this is not the American way.
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[...] On that subject, Tim Geithner still clearly sees a role for government to provide indirect funding for encouraging home loans, even if it’s smaller than today. Barney Frank would rather abolish the GSEs and instead have the government support rental housing. Through it all, the debate over whether the government should encourage single-family home ownership raged, and it’s a nice debate to have. I don’t support some of the more extreme efforts we’ve seen in this area. I think we should cap the mortgage interest deduction so that we’re not subsidizing McMansions and providing incentives for people to buy bigger homes. I also don’t think we should allow the mortgage interest deduction on vacation homes. And greater awareness of affordable rental housing supports would be extremely helpful: even with their limited reach, policies like Section 8 housing aid helps the overall housing market. Opinions on this and other points about the future of housing finance vary. [...]
Comment posted August 18, 2010 @ 7:53 pm
Innovations in financing? What a politically correct way to say THEY STOLE OUR MONEY! They created SURE TO FAIL loans and profited. How is this legal? Then we bail them out with tax dollars we paid and they are still debating the issue. I have tried to give the President a chance, but I am sorry this is too much. With the government's knowledge and approval, They created a phony market, kept the profits and declared they were broke.
If the government doesn't end this now, and go back to old method of mortgage and loan financing our once free country will be gone. You can't pay mortgages, loans, credit cards, utilities and of course taxes to your landlord…These get paid to A DICTATOR.
Pingback posted August 19, 2010 @ 2:14 am
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Trackback posted August 19, 2010 @ 12:00 pm
Obama Administration Works To Soothe Health Reform Concerns; Insurance Commissioners Advance Implementation Guidance…
The Associated Press reports that the new health reform law “hasn’t helped Americans feel any more secure about their own medical care.” That’s according to a survey, to be released this day by the Robert Wood Johnson Foundation, which says……
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Comment posted August 21, 2010 @ 5:00 am
Bill Gross is the largest fixed-income fund manager in the country. He has a fully vested interest in making sure his clients get full government guarantees on their mortgages. I just ignore everything he writes–he is simply trying to promote rent-seeking clients. He couldn't care less about the rest of us.
Comment posted August 24, 2010 @ 5:40 pm
although the damage has already been done not much can be done other what does the future … hold but reality is not everyone should be a homeowner or is qualified to be a homeowner … its just the hard truth … but making too easy just cheapened the whole thing Nipomo Homes
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