It seems that mortgages, and the housing market in general, are on the front burner for the Obama administration heading into election season.
Time after time, Obama administration officials, and then President Barack Obama himself, brought the conversation back to fixing the housing market in the U.S. at a summit of personal finance journalists held at the White House this week.
Obama mentioned housing as a key headwind facing the economy and pledged to expand the administration's Home Affordable Refinance Program, or HARP, to include mortgages not owned by Fannie and Freddie in order to boost the housing market.
Alan Krueger, the chairman of the president's Council of Economic Advisers, speaking earlier, echoed the president's sentiment that fixing the housing market was a key plank in the administration's economic program.
"The housing market doesn't always work well when left to its own devices," Krueger said.
He said the administration believes the massive glut of overbuilt housing in many areas is starting to show signs of working its way through the system. But when I asked Krueger about mortgage principal reduction, it became clear that on many fronts, the administration's options are limited.
"The housing market has been a source of frustration," he said.
He pointed to the nearly 1 million Home Affordable Modification Program, or HAMP, refinances and to the Treasury purchases of mortgage-backed securities as ways the administration had looked to stem falling housing values and rising foreclosures. But he also admitted that convincing the Federal Housing Finance Agency, an independent agency, to allow Fannie Mae and Freddie Mac to write down borrowers' principals had been a struggle.
Another speaker, Brian Deese, Deputy Director of the National Economic Council, went further, framing the administrations' efforts to remove "artificial barriers" preventing millions of homeowners from refinancing as a major economic stimulus program.
"At the end of the day, it functions like a tax cut," he said, putting much-needed dollars into Americans' pockets.
One barrier the administration would like to see removed is that preventing underwater homeowners from refinancing. Under the administration's proposals, underwater homeowners would not be prevented from refinancing as long as they had good credit and were current on their payments.
Deese also said that the flood of foreclosures has been devastating for both the housing industry and the economy generally, saying that every time a home goes into foreclosure, all the houses within a tenth of a mile see their values drop 7 percent. Like Krueger, he acknowledged the difficulty of deploying principal reduction, which he said could be an effective tool in fighting foreclosures because of the FHFA's reluctance to allow the practice. He was optimistic, though, that the FHFA would change its tune, thanks in part to the bigger incentives being offered by the administration for Fannie and Freddie principal reductions.
"For first time, HAMP incentives would be available to Fannie and Freddie loans, and as a result, FHFA has announced that they're reconsidering that issue," he said.
Deese also said the administration is trying to encourage mortgage lending by ordering the Federal Housing Administration to take refinancing homeowners' credit scores out of the equation when calculating the overall quality of the mortgages lenders write.
"Lenders were hesitant to offer refinancing because they were worried about driving down their compare ratio," Deese said. "We're saying to lenders, 'If there's an issue that's keeping you from lending, how can we address that.'"
What do you think? Would reducing the amount people owe on their mortgages help fix the housing market, and ultimately, the economy? What do you think of the administration's housing policies?
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