Obama’s Phony Fight For Housing

12 Oct

This story appears in the Oct. 24 edition of Forbes magazine.

For people who profess their desire to get the depressed housing market back on its feet the Obama Administration has been singularly inept. Despite numerous programs to allegedly help people keep their homes and prop up housing prices, the housing crisis continues, and home building is at a fraction of its levels before the bubble that began a little more than a decade ago. Here are things Washington would do if it were genuinely serious about alleviating this crisis:

• Order Fannie Mae and Freddie Mac to let homeowners whose equity is temporarily underwater refinance their mortgages as long as they have equity in their houses and are making their monthly payments. These folks are stuck with mortgages at rates of 5% and 6%. Since they have “skin in the game” and are servicing their mortgages, why not let them get the current lower rates? Obama professes to be the scourge of the rich, yet it’s high-income Americans who are reaping the most refinancing advantage from today’s minuscule mortgage interest rates.

• The Administration claims it wants to make it easier for repossessed or unoccupied houses to be turned into rentals. Good idea. But Fannie Mae and Freddie Mac both severely restrict the number of houses an entrepreneur can acquire for that purpose: ten at Fannie, four at Freddie. Remove the restrictions entirely. If someone is willing to risk capital to buy a lot of houses to rent out, by all means let them. It’s their money at stake, not the taxpayers’.

• Dust off an innovation used more than 20 years ago, when the real estate market in Texas and elsewhere collapsed during the savings-and-loan crisis: Let homeowners who can’t make their mortgage payments have the option—if they qualify—of signing a five-year lease on the house. Monthly payments would be lower, and there would also be less likelihood of abandoned houses depressing neighborhood property values. The lessees would have the option after five years of buying their houses at a discount or moving on.

• Drop the damaging lawsuits Fannie Mae and Freddie Mac filed against banks for alleged wrongdoing in underwriting packages of mortgages during the housing mania more than five years ago. This was less a crime than multitudinous stupidity. Let banks focus on the future instead of spending their efforts and capital on fighting government shakedowns. If banks are to be held criminally liable for what happened, then the biggest culprits of all—the easy-money Federal Reserve and the government-sanctioned monopolies, Fannie and Freddie—should be headed (pun intended) for the guillotine.

• At the same time urge the courts not to upend the settlement Bank of America made over allegedly questionable activities perpetrated by Countrywide Financial, the company it acquired in 2008. Some state attorneys general want a bigger payoff than the $8.5 billion BofA has offered. The Administration should tell them, as the Brits would put it, to “bugger off.” To mix metaphors, if the pols overmilk this BofA cow they could well flip its mortgage entities into bankruptcy, and the AGs would get far, far less than that $8.5 billion.

• Stop the Federal Housing Administration from guaranteeing mortgages with ultralow down payments and other questionable underwriting practices. The FHA is well on its way to joining Fannie Mae and Freddie Mac as a big financial disaster.


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