Yesterday, President Barack Obama delivered the third in a series of big economic speeches, this one about housing. Despite a remarkable market recovery, things still need fixing: Millions are stuck in underwater mortgages, parts of the country still have vast tracts of blighted and abandoned land, and several cities have supply crunches so severe that only the wealthy can afford to live there. Meanwhile, Fannie Mae and Freddie Mac are still around, under conservatorship, in a state of suspended animation.
Obama's overall plan is a mix of ideas he's proposed before and failed to get from Congress, things Congress is working on, things he's already doing through agencies and executive action, and a few new ideas. Here are the main pieces, which are laid out in most detail here.
The To-Do List:
- Kill Fannie and Freddie by 2018: This is the thread that unites everyone involved, from think tankers to a Republican plan in the House to a bipartisan plan in the Senate. Obama himself has been calling for the pair to be wound down since a Treasury report in 2011. In the mean time, he asking legislators to come up with a "common securitization platform" to standardize mortgage-backed securities, and reduce loan limits to get out of the business of backing high-end purchases.
- Create an "independent regulator" for a system in which private capital bears most of the risk for mortgage loans: This sounds most like a plan for a "Federal Mortgage Insurance Corporation" envisioned in Senators Mark Warner and Bob Corker's bill. A government reinsurance guarantee would still exist, but private capital would have to be "wiped out" before it kicked in. Theoretically, that will allow for the continued availability of the 30-year fixed-rate mortgage, which banks otherwise might consider too risky to issue.
- Tax securities to help low income people: Also like the Corker-Warner bill, Obama wants financial institutions to pay a small assessment on mortgage-backed securities that will support low-income housing. That approach would replace explicit goals for lending to poor people, which is upsetting to some advocates.
- Continue to provide direct loans for underserved communities: Even with a reduced role for Fannie and Freddie, Veterans and poor people would continue to get loans through a strengthened Federal Housing Administration, the U.S. Department of Agriculture, and Veterans Affairs.
- Let almost everybody refinance: Obama proposed this last year, saying it could save homeowners $3,000 per year on average. Economist Mark Zandi explained at the time that investors in those mortgages would earn less, but that they're mostly the government and foreign entities anyway, so the measure would have a stimulating effect on the economy. Rising interest rates, however, could put a damper on its effectiveness.
- Shore up blighted communities: Obama highlighted what he's already done to pump money into neighborhoods hit hard by the foreclosure crisis, and what he asked Congress to do a couple years ago in putting people to work by rebuilding vacant homes.
The "Underway" pile:
- Applaud the Consumer Financial Protection Bureau: The agency created by the Dodd-Frank law has already done a bunch of things to make getting a mortgage simpler and more fair, including pass the "qualified mortgage" rule that protects lenders who back borrowers who've shown they have the wherewithal to repay loans. Check!
- Applaud immigration reform: Bringing more people into the country will increase demand for housing, thereby raising equity for those who already own their homes. Check! (Almost.)
The vague wish list:
- Do something about rental housing, maybe: For a speech about housing, Obama spent precious little time talking about the third of Americans who rent their homes, and may do so forever. The fact sheet touts several existing programs, urges Congress to pass a budget that invests in affordable rental housing, requests that the new housing finance system support multifamily development, and expresses a hope that local governments can reduce barriers to housing construction.
- Get some more data: It would be nice to collect information about how well mortgages perform over the lifetime, so borrowers can know more about their lender.