Jan272012

Obama’s housing policy has lead to unprecedented affordability

Despite pockets of high pricing, under the presidency of Barack Obama, house ownership affordability on a monthly payment basis has hit an all-time low relative to rents and incomes. This should be cause for celebration. People no longer have to apply an onerous portion of their monthly budget to house payments and related expenses. If this condition persists, the economy will recover quickly from the stimulus of newly freed disposable income.

However, rather than celebrating this tremendous achievement, people decry the failure of Obama’s policies. This is wrongheaded. High real estate prices are not desirable or beneficial to society. It creates excessive debt burdens which curtails consumer spending except for the brief and unsustainable housing market rallies where people are given free money through cash-out refinancing. The days of HELOC dependency are over, and America is far better off for it.

Has Obama’s housing policy failed?

By Tami Luhby @CNNMoney January 18, 2012: 11:50 AM ET

NEW YORK (CNNMoney) — The president’s efforts to revive the housing market have largely failed. But is that entirely Obama’s fault?

While it is true that Obama has failed to make house prices go up — and he and all his advisers do want house prices to go up — this cannot be construed as a failure. The mistake was embracing a policy designed to make house prices go up when lower house prices will lead to a better economic outcome.

Obama doesn’t really care if house prices go up or down, he wants to see the economy improve so he can get re-elected. He and his advisers believe this is best accomplished by making house prices go up. They are wrong. Fortunately for them, they failed to obtain the outcome they mistakenly embraced. In this case two wrongs do make a right. Lower house prices have lead to unprecedented affordability which will ultimately translate into more spending money and an improved economy. Obama will succeed is his larger objective to boost the economy by failing to achieve a mistaken policy goal of raising house prices.

“I don’t think anyone could have done anything to stabilize the housing market,” said Ed Jacob, executive director of NHS Chicago, which provides homeownership and foreclosure prevention services. “This housing market was in far worse shape than anyone knew.”

While it’s true that nobody could have made house prices go up, it’s false that the housing market was in far worse shape than anyone knew. Many eminent economists including Noriel Roubini and Dean Baker knew and publicly stated how bad the housing market really was. Even nobody part-time bloggers like me made the point over and over again.

Obama took office in 2009, promising swift action to address the mortgage crisis. He quickly unveiled his signature foreclosure prevention program, known as HAMP, and his refinance program, known as HARP.

But the HAMP program, which was designed to lower troubled borrowers’ mortgage rates to no more than 31% of their monthly income, ran into problems almost immediately. Many lenders lost documents, and many borrowers didn’t qualify. Three years later, it has helped a scant 910,000 homeowners — a far cry from the promised 4 million.

HARP, which was intended to reach 5 million borrowers, has yielded about the same results. Through October, when it was revamped and expanded, the program had assisted 962,000.

Again, these programs are both successes in their failure. The successes have merely delayed the inevitable, and the failures ended up going through foreclosure and bankruptcy where their debts were wiped out which put them in a rental where they only spend a sane portion of their income. Many others who failed to get loan modifications merely stopped paying their mortgage, and their spending has stimulated the economy, though this squatter’s stimulus is not sustainable.

Meanwhile, more than 3.5 million people remain behind in their mortgage payments and more than 1.9 million homes are in foreclosure. And home prices have fallen for six months straight.

Falling prices are a sign of how successful Obama’s policies really are. For the first time in more than a decade, when I look on the MLS, I see properties that would cost me less to own than to rent. I consider that one of Obama’s greatest achievements in his term in office.

One of the main problems with Obama’s foreclosure prevention program was that the housing crisis had already spiraled beyond unaffordable mortgage rates. Homeowners were defaulting because they didn’t have jobs — and the administration’s effort did little to help them.

This nonsense keeps appearing: though some defaults were caused by job losses, many were caused by the toxic nature of the mortgage and the insolvent burden of very high debt loads. In other words, lenders overdosed borrowers with debt and caused their financial death.

In response, Obama rolled out a multitude of initiatives designed to help the underwater and the unemployed. But few of them have had much impact.

That’s because the unemployed were never the bulk of the problem.

“He focused his gun in the wrong place,” said Anthony Sanders, a real estate finance professor at George Mason University. “The administration’s approach is to kick the can down the road. That doesn’t lead to a recovery and just strings the problem along.”

It’s not only Obama who has embraced the amend-extend-pretend dance. The treasury department, the Congress, the federal reserve, and the banks all embraced any policy that allowed them to delay the Day of Reckoning. They are still doing it.

Obama Answers Bernanke Plea With Refinancing Plan: Mortgages

January 26, 2012, 11:29 AM EST

Jan. 25 (Bloomberg) — President Barack Obama answered Ben S. Bernanke’s appeal for more action to fix the U.S. housing market that’s restraining the economic recovery by proposing a plan to help borrowers reduce their monthly mortgage payments.

Obama is sending Congress legislation that would allow homeowners to tap record-low borrowing costs, potentially boosting housing as he seeks re-election this year. The proposal could save participants about $3,000 a year, Obama said in his State of the Union speech to Congress.

So Obama is trying to buy votes by giving my tax dollars to loan owners? Let’s be realistic. If this is passed, it will dramatically increase the losses at the GSEs, and as a taxpayer, I will end up paying that bill. I don’t like that idea. Fortunately, it has little chance of getting through the Republican House of Representatives. However, it is a smart political move. It forces the Republicans to vote against helping loan owners. Obama is wagering this will benefit him more than it hurts him. This is certainly true with his left-wing base.

The program will give “every responsible homeowner the chance to save about $3,000 a year on their mortgage by refinancing at historically low interest rates,” Obama said. “No more red tape. No more runaround from the banks.”

Costs would be covered by a fee on financial companies with more than $50 billion in assets, according to two senior administration officials who briefed reporters on the plan. Obama said “a small fee on the largest financial institutions will ensure that it won’t add to the deficit.”

Does anyone think there is any chance the Republicans will vote for a tax increase on financial services companies? No way.

The initiative will also apply to all borrowers, whether or not their loans are currently government-backed, with details still to be worked out, according to the officials, who spoke on condition of anonymity.

The plan “sounds close to impossible to get passed,” said Bryan Whalen, co-head of mortgage bonds at Los Angeles-based TCW Group Inc. which oversees $118 billion.

“The president clearly understands the chances of passage this year are close to zero because there’s no appetite to increase the credit risk at the government,” said Joshua Rosner, an analyst at the New York-based research firm Graham Fisher & Co., in a telephone interview. “Welcome to the election cycle.”

Exactly. This proposal is great political theater, but it has almost no chance of getting passed, particularly in its current form. And since most Republicans would rather see nothing done, thankfully, there will be little impetus to craft a compromise. This idea is dead on arrival.