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White House focuses on mortgage fix

By Claes Bell · Bankrate.com
Wednesday, April 4, 2012
Posted: 7 pm ET

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.

Personal Finance Online Summit

President Barack Obama drops by the Personal Finance Online Summit and delivers remarks in the Eisenhower Executive Office Building, April 4, 2012. (Official White House Photo by Pete Souza)

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?

Follow me on Twitter: @ClaesBell

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10 Comments
Robert Lalime
April 16, 2012 at 5:06 pm

I would declare a national emergency. Set all the rates at 4% charge a one time fee to do it. Then let the market find its true value. Sink or swim baby.

Out of Housing
April 06, 2012 at 3:51 pm

I sold my house for a $50k loss back in November. Who's gonna give me my lost money back?

Fix Housing Right
April 06, 2012 at 2:35 pm

Short sales and foreclosures have created a mess in the housing market. The law may have help some people by forgiving the debt that genuinely can't afford it but at the same token have created a bunch of strategic default homeowners who became crooks to take advantage of the system. The government agencies should help homeowners to refinance at lower rates with the options of reducing the principle( but will have to recoup the principle when homeowner sells the property or adjust the mortgage principle when the home value appreciated in value with time period). If the government is bailing out by reducing the principle without strings attached for recouping them, then this country will have more loan modification with reducing principle because every homeowner like Joe Blow down the street will have the same problem. If govt. can bail out AIG & Citibank to resolving the problem, they should employ the same strategy to the homeowner bailout but not giving them away for free because it will create more problem. What goes up will come down and vice versa, like the stock market!

Crotnxx
April 06, 2012 at 2:15 pm

I hear you "Under the Sea". I have same case. My credit score is 810, always pay bills on time. My mortgage is 6.8% adjustable. Going rate now is around 4.00% and I can't get it since it's not my primary residence anymore and I am under water. The rates could be 0% for all I care. I can't get refi no matter what. Why everyone is trying to keep people in the houses they can't really afford in first place? Why nobody is trying to help responsible citizens who pay their bills on time and not look for any handouts? If you have really low paying job or no job at all how can you pay your mortgage? Even if your principal will be reduced or rate will be 2%. If you have no income there is no way you can afford that. I feel sorry for everyone, because we all are struggling these days, and I hate to see winners and loosers, but some cases simply can't be cured.

Under the sea
April 05, 2012 at 11:33 pm

We are $120,000 under water because of devaluation. We would just like to be able to refi at a low rate. We had to move for work, it's not our primary residence any more. This disqualifies us for refi programs. We rent the home and put $1200 each month with the rent to meet the payment. We are not passing our debt to the tax payers or walking away and hurting other values. We would only like to cut our interest rate and pay our debt.

Ray
April 05, 2012 at 4:16 pm

While reducing mortgage principals would help some folks out and would encourage some folks to move, no, it would not fix the housing market. Just who do you expect to take these losses, the taxpayers (FNMA/Freddie), instead of the homeowner?

Concern
April 05, 2012 at 12:45 pm

Reducing mortgage principals would help our family. So far, any refinance program has not worked for us. We need to sell and re-locate but can't sell the house for what we owe. Foreclosures and short sales are the only thing selling and we can't compete with those figures. It makes "walking away" look really attractive and I think that is why people are. 2 years to wait until they can buy again....why not? If we could reduce our mortgage principal by $25,000 we could compete with other foreclosures on the MLS. Our home is maintained and has appliances so we might have an advantage then. Just hoping interest rates stay low so we can buy too. FOR NOW WE ARE STUCK WAITING.