Lost in the mire of political news about yet another trillion-dollar deficit and the latest from the campaign trail are a number of important developments in housing.
This week the President kicked off the campaign to sell his plan for solving America’s housing market woes, a plan he outlined in the State of the Union. Or in other words, he is kicking off a campaign to sell many of the same solutions, with some revision, to remedy the impotence of previous initiatives. Whether this is an empty tactic of electioneering or a genuine move to improve upon the stark inadequacies of measures past is both unclear and largely irrelevant. Congressional approval, where needed, seems implausible.
In the realm of mass refinancing and other approaches to bolster the pitifully weak housing market, the President has had a number of second chances. Regardless of whether the plan on mortgage assistance the President announced in Falls Church, Virginia on Wednesday was part of a calculated campaign move, the fact remains that it has taken the President three years of trial and error to lump together a housing policy that still only might stick. It seems likely that the ship has sailed.
The problems in the housing market are widely acknowledged and certainly still exist. Underwater homeowners, those whose mortgages exceed the value of their homes, are stuck watching home prices continue to fall, dragging down household wealth and consumer spending. A separate issue also remains regarding the lack of consensus on the best way to reform the government-sponsored enterprises (GSEs), Freddie Mac and Fannie Mae. In fact, more generally, a frank debate in this country on the proper role of government in incentivizing home ownership is long overdue. It hasn’t happened, but it should.
Much like the unemployment situation and lackluster economic growth, bills were passed and a tremendous amount of money was spent, but thus far neither has produced the desired results. Any improvements in this plan over previous plans are compromised by the political realities of a contentious election year. In this arena, a policy is only as good as the support it can muster in a divided Congress. This is a nonstarter.
A few of the components in the President’s plan are already in place and several in weaker forms have already been attempted. Of the seven initiatives listed on the President’s housing plan fact sheet, he has already accomplished extending loan forbearance to the unemployed for a full year, at least in part, and the pilot program on turning foreclosed properties into rental housing or REO Initiative was also announced on Wednesday. More controversial efforts, like using the proposed Financial Crisis Responsibility Fee to pay for a questionable FHA-backed refinancing plan, lack viability in a Congress that has fundamental internal differences and is running for reelection.
A recovery in housing could be a very important boost to the economy. Federal Reserve Board Chairman Ben Bernanke echoed these sentiments just today in his testimony before the House Budget Committee.
Are all of the ideas in the President’s plan bad policy? Certainly not, and the debate is worth having. The Washington Post today published the responses of a number of experts weighing in on the President’s plan. The responses by Douglas Holtz-Eakin, President of the American Action Forum, and David Stearns, president and CEO of the Mortgage Bankers Association, as well as others mirror the sentiments already expressed on what seems to be the quixotic nature of this plan. While it may be the President’s best effort to date, left unaltered many of these proposals will undoubtedly be shelved. Does the President have time to go back to the drawing board?