President Barack Obama’s housing policy has been assailed by both sides of the political spectrum. The Right criticizes him because any government involvement in the housing market is socialist meddling (I happen to agree with the Right on this issue). The Left criticizes him for not going far enough to give free money and other perks to loan owners. Personally, I think Obama has navigated the political waters very well on housing. He has done enough to placate the critics in his own party, but he hasn’t done enough to actually matter. In other words, Obama’s housing policy has succeeded wildly by failing spectacularly.
I wrote about Obama’s housing policy on two other occassions. Obama’s housing policy has lead to unprecedented affordability and Obama extolls HELOC abusing Ponzis as “responsible” homeowners. The last one was less about policy and more about their poor efforts to justify what the Left wants. What follows is some biased left-wing crap that examines the impact of Obama’s housing policy. I had to cut it down significantly, so if you want the full version, you will need to click on the headline.
Three years ago, when President Barack Obama unveiled his plan for solving the U.S. housing crisis, one in five borrowers owed more on mortgages than their homes were worth, banks were repossessing 74,000 homes per month and sale prices had plunged 30 percent from their 2006 peak.
“All of us will pay an even steeper price if we allow this crisis to deepen — a crisis which is unraveling homeownership, the middle class, and the American Dream itself,” Obama told the audience gathered at a high school in Mesa, Arizona, an area with one of the highest foreclosure rates in the country.
The crisis did deepen. Home prices continued to fall in most states during the Obama administration. Nearly 23 percent of borrowers are underwater on their loans, virtually unchanged from 2009, according to real estate data firm CoreLogic.
Obama didn’t deliver on his vow that day to avert as many as 9 million foreclosures.
While his plan was undermined in part by the weak U.S. economic recovery, it also lacked broad and aggressive measures. Relief programs have tinkered around the edges of the housing finance system because Obama’s advisers chose early on not to expend political capital forcing banks to forgive mortgage debt. Instead, they created homeowner aid programs with voluntary participation by lenders and strict rules to avoid rewarding speculators or irresponsible borrowers.
Obama’s advisers were smarter than I gave them credit. If Obama would have bailed out speculators and Ponzis, that would have been a huge failure. Ponzis and speculators are fools who deserve to suffer the consequences of their poor decisions. That’s the only way they will learn not to do that again.
“They were well-intended, but they were not bold enough,”
That is why they were so successful. Obama pandered to the left without giving loan owners a break. Kudos to him.
said Steven Nesmith, a former vice president at loan servicer Ocwen Financial Corp. (OCN) (OCN) who served as an assistant secretary in the Department of Housing and Urban Development during the administration of President George W. Bush. …
Some critics say the administration’s mistake was intervening to stop foreclosures in the first place and that home prices should have been left to hit bottom on their own.
“We would have been better off letting the market heal itself,” said Anthony B. Sanders, professor at George Mason University. “The recovery would have been quicker.”
Yes, we would have. Prices would have crashed, the market would have cleared, and without the threat of overhanging supply, prices would have rebounded back to rental parity levels in a short time which would have provided equity and reignited the move-up market. Plus, with debt levels much reduced, homeowners would have more disposable income to stimulate the economy.
‘Mixed Reviews’“To be fair, you’d say there are mixed reviews on any individual program, but the multitude of programs clearly had an impact on stemming the crash,” said David Stevens, president of the Mortgage Bankers Association, who served as commissioner of the Federal Housing Administration during the first two years of Obama’s term.
And that is why they failed. The variety of loan modification programs, tax credits and other props have merely slowed the decline.
…Obama pledged to use $50 billion from the $700 billion bank bailout approved by Congress in 2008 to help homeowners. Only about $3.7 billion of that has been spent.
… No Rewards
At the same time, there was a debate within the administration about just who should benefit from its aid programs. Shaun Donovan, secretary of the Department of Housing and Urban Development, pushed for the government to bear some of the cost of reducing mortgage principal for underwater borrowers. Others, including Treasury Secretary Timothy J. Geithner, argued against it, saying they feared it could reward people who tapped home equity to support lavish lifestyles.
I’m impressed that Geithner didn’t want to bail out the Ponzis. I’m not impressed with how much he did to help bail out the banks.
… “We made that choice because we thought it would be dramatically more expensive for the American taxpayer, harder to justify,” Geithner said at a congressional hearing in December 2009, adding that paying banks to reduce principal would “create much greater risk of unfairness.”
That choice ultimately limited the program’s reach. The often difficult process of getting a HAMP modification was an “unfortunate outcome” of designing a program that would “protect against providing free bailouts to people who weren’t deserving,” said Stevens, the former FHA commissioner, who is to become president of SunTrust Mortgage later this month.
The basic dilemma of the housing bubble was that far too many people engaged in stupid and reckless borrowing. Period. If you create a program that wasn’t going to reward the undeserving, the program was not going to serve many people. Again, the policy succeeded by failing to serve those who wanted help but didn’t deserve it.
By the end of 2009, banks and other servicers had completed fewer than 70,000 permanent mortgage modifications under HAMP. …
Geithner hasn’t released a long-promised plan for winding down Fannie Mae and Freddie Mac (FMCC) (FMCC), the taxpayer-owned mortgage financiers that own or guarantee $5 trillion in loans. The two companies have been operating under U.S. conservatorship since bad bets on risky loans drove them to the brink of insolvency in 2008.
The GSEs still insure the majority of the loans in the housing market. As long as prices were declining, there was no chance of winding these behemoths down. Realistically, the GSEs will be in conservatorship for at least five more years for prices to stabilize and lenders to recycle their toxic mortgages. Until that’s done, there is no chance of putting them to rest.
That leaves the government as the primary source of funds for new mortgages.
“Investors cannot come back into the mortgage market because we cannot price the unknown,” said Chris Katopis, executive director of the Association of Mortgage Investors. …
The administration also is hamstrung when it comes to forcing states to use the proceeds of the settlement to help homeowners. California Governor Jerry Brown is pushing to use $400 million of his state’s share to help plug a $15.7 billion hole in the budget instead of its intended purpose: monitoring how banks comply with the agreement.
H.D. Palmer, a spokesman for Brown, said the governor is proposing to use the funds for other housing-related expenses “in a way that provides relief to the state’s general fund.”
’“Nag them until they actually get it done,” Obama said. “It’s one small step that will help us create the kind of economy that all Americans deserve.”
The Reno couple who hosted Obama, Paul and Valerie Keller, also have modest goals after being crushed in the credit crisis.
Remember them? Obama extolls HELOC abusing Ponzis as “responsible” homeowners.
Their troubles started when customers of Paul Keller’s home-remodeling business stopped paying bills as the economy soured, Keller said in a phone interview. In a 2007 refinance, the couple took $51,000 out of their home’s equity to cover his business debts. Then their home’s value plunged from about $250,000 to $100,000, with $168,000 still left on the loan.
Lowering the monthly payment “is nice, and the HARP program did work for us,” Keller said.
He said he and his wife aren’t looking to do more than escape without any more financial disasters.
“Breaking even — at this point that’s the goal,” Keller said.
Bullshit. That may be his goal today, but once he’s no longer underwater, he will see the potential for HELOC booty, and he will quickly change his tune.
Obama’s housing policy is a success
For the most part, I think Obama’s housing policy has been a success. Of course, my criteria are different than most people’s. The pandering and posturing for the left was merely for show. I discount the words for that reason. What did Obama actually do? First, he gave the few people who merely bought at the wrong time the ability to refinance and reduce the monthly burden of keeping an underwater house. Second, he continued the policies of George Bush by bailing out the banks — which I fault him for, but he didn’t have many good alternatives at that time. Third, he passed a financial reform bill criticized by both sides which tells me he struck a good balance. Fourth, he didn’t do anything substantial to bail out loan owners, and he took the heat for doing the right thing.
I would have preferred he let house prices crash, let the banks go under, nationalize the banks, wipe out the stock and bondholders, throw the management out, and let the market reset itself. Perhaps this would have been too disruptive, and his policies which have served to drag out our economic woes may have been the best course? I don’t know.
The kind of borrower we don’t want to bail out
Have you noticed how many really outrageous HELOC abuse properties are out there? I don’t have to look very hard for these. The sheer volume of them always astounds me — that and the total dollar amount of the take. So many people living so irresponsibly. I only profile a tiny fraction of the abuse just in Orange County. Hell, I only profiled a tiny fraction of the abuse in Irvine alone, and I had more than 1,000 HELOC abuse posts when I was writing only about Irvine. I’m like a wastewater treatment plant operator watching the turds float by wondering what the people consumed. It isn’t pretty.
- Today’s featured property was purchased on 1/15/1988 for $291,000. I don’t have the original mortgage data, but he likely put 20% down and borrowed $232,800, but he may have paid cash. This was a long time ago. An owner from 1988 should have about six years left to pay off their 30-year fixed-rate mortgage. Instead, this guy gave the house back to the bank in a deed in lieu transaction in March.
- On 10/17/2002 he obtained a $100,000 loan.
- On 8/14/2003 he obtained a $225,000 first mortgage.
- On 4/13/2004 he refinanced with a $344,000 first mortgage.
- On 7/14/2005 he refinanced with a $625,000 first mortgage.
- On 8/8/2006 he refinanced with a $639,100 Option ARM with a 1.25% teaser rate.
Apparently, the extra $400,000+ in debt he piled on was too much to handle. He spent his house, and now he has nothing.
Yorba Linda Overview
Median home price is $511,000. Based on a rental parity value of $610,000, this market is under valued.
Monthly payment affordability has been worsening over the last 1 month(s). Momentum suggests unchanging affordability.
Resale prices on a $/SF basis increased from $247/SF to $250/SF.
Resale prices have been falling for 12 month(s). Price momentum suggests falling prices over the next three months.
Median rental rates increased $16 last month from $2,516 to $2,533.
Rents have been slowly rising for 12 month(s). Price momentum suggests slowly rising rents over the next three months.
Market rating = 6
$704,100 …….. Asking Price
$291,000 ………. Purchase Price
1/15/1988 ………. Purchase Date
$413,100 ………. Gross Gain (Loss)
($23,280) ………… Commissions and Costs at 8%
$389,820 ………. Net Gain (Loss)
142.0% ………. Gross Percent Change
134.0% ………. Net Percent Change
3.6% ………… Annual Appreciation
Cost of Home Ownership
$704,100 …….. Asking Price
$140,820 ………… 20% Down Conventional
3.67% …………. Mortgage Interest Rate
30 ……………… Number of Years
$563,280 …….. Mortgage
$130,428 ………. Income Requirement
$2,583 ………… Monthly Mortgage Payment
$610 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$176 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
$3,369 ………. Monthly Cash Outlays
($408) ………. Tax Savings
($860) ………. Equity Hidden in Payment
$170 ………….. Lost Income to Down Payment
$196 ………….. Maintenance and Replacement Reserves
$2,466 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$8,541 ………… Furnishing and Move In at 1% + $1,500
$8,541 ………… Closing Costs at 1% + $1,500
$5,633 ………… Interest Points
$140,820 ………… Down Payment
$163,535 ………. Total Cash Costs
$37,800 ………. Emergency Cash Reserves
$201,335 ………. Total Savings Needed
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