President Obama has begun embracing housing policies that administration officials earlier thought unwise or unworkable as he embarks on his most aggressive push to address the nation’s foreclosure crisis and depressed real estate market since the first months of his tenure.
Obama has unveiled more than half a dozen plans in recent months to help millions more Americans refinance their mortgages at low rates, to reduce the debts owed by struggling homeowners and to expand existing programs to broaden the pool of borrowers eligible for government aid. The latest initiatives, announced this week, seek to help members of the military and Americans who have government-insured mortgages.
The administration had previously rejected some of these efforts on the grounds that they were wrong on the merits, risky for taxpayers or could not be done. For instance, administration officials in the past had said they didn’t want to bail out speculators or people who had taken on far too much debt. Now, under certain circumstances, the administration is willing to do both.
What’s more, in recent months Obama has used his bully pulpit to discuss housing far more than earlier in his term. After rarely mentioning the nation’s housing problems for several years, the president is directly confronting the issue, which he has called the “most stubborn” of his presidency.
The new actions come after waves of criticism from Democratic groups, community activists, lawmakers and economists, who have argued that the administration was far too slow to deal with the worst housing crisis since the Great Depression.
By addressing housing with such force lately, Obama has been able to draw a contrast with his Republican presidential rivals, who generally have favored a hands-off approach to the foreclosure crisis. He has also been able to salve wounds in his relationship with liberals.
“They have really started to step up and recognize that economic progress is going to be much slower unless you address the housing crisis,” said John Taylor, head of the National Community Reinvestment Coalition, an activist group, and a frequent critic of the administration.
Obama’s aides say the president has urged his staff to release the new proposals as fast as possible. This aggressive push reflects a heightened concern that weakness in the housing market, with millions of people owing more than their properties are worth, remains one of the preeminent drags on the fledging economic recovery, aides say.
They say the recent proposals represent a natural outgrowth of a policy reexamination that has been continuous throughout the president’s tenure.
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Shaun Donovan, secretary of Housing and Urban Development, said the administration first tried to save homeowners who were in danger of losing their homes because they had taken out mortgages that turned out to be risky. But as housing problems spread to a broader group of homeowners, who were losing their jobs amid high unemployment, the administration had to transform its strategy.
“We made changes based on what we were seeing out in the real world and what we were learning about the nature of the crisis as we moved forward,” Donovan said.
But Rep. Scott Garrett (R-N.J.), a senior member of the House Financial Services Committee, criticized Obama’s new push, saying the hodgepodge of policies is causing confusion and delaying economic recovery.
“Part of the problem in the housing market and in the financial markets in general is the continued volatility that comes out of Washington,” he said in an interview Thursday. “As long as the administration just continues to vacillate with one new proposal after another and doesn’t really solve the problem, that is only going to exacerbate the problem and not help it.”
Republican presidential front-runner Mitt Romney has also criticized the Obama administration, accusing it of adopting policies that undermine the housing market by keeping the foreclosure crisis from running its course.
“The only real solution to the housing crisis is to get the economy growing again at a healthy rate,” the Romney campaign said in a statement Thursday.
Susan Wachter, a real estate professor at the University of Pennsylvania, said no individual proposal by Obama is likely to dramatically help the housing market but, taken together, the plans could begin to make a significant difference.
“They are like trial balloons that are put out there, which have the potential, if adopted across the industry, of being a game changer and resolving the problems of oversupply and defaults and foreclosures,” she said. “But we’re not there yet.”
Obama’s housing programs have helped roughly 2 million people but have fallen far short of the up to 9 million he originally projected they would assist, according to the administration’s statistics. As the programs have struggled, top advisers have worked to revamp them, periodically announcing revisions and new ways to deliver aid.
But they still also drew lines around what they would do, concerned that overly generous programs would waste taxpayer money, provoke a backlash from a public skeptical of bailouts or have other negative economic effects.
For instance, Obama’s economic team made clear from the beginning that only borrowers who occupied their properties would be eligible for aid — no investors, or “speculators,” as the administration called them.
The administration also limited the aid it offered to borrowers with excessive debt and excluded some borrowers whose main mortgage payment was more manageable but who faced very high levels of credit card debt and other types of debt.
And early last year, citing the concerns of regulators and mortgage investors, administration officials insisted that they could not require that unemployed borrowers be given more than a three-month grace period for making overdue mortgage payments. Foreclosure aid groups had been pressing the administration over the issue, saying that millions of homeowners were jobless for far longer than that.
“We felt that was really inadequate because there was a compelling need as well as a policy justification to do this,” said Lewis Finfer, an activist with the Massachusetts Communities Action Network.
But over the course of the year, the administration began to change course. By the summer, it had expanded forbearance to the full year that outside groups demanded. And that was just the beginning.
Administration officials say that Obama, sometimes citing letters he has received from homeowners and stressing the human cost of foreclosure, has pushed his advisers to quickly roll out ambitious proposals, encouraging them to be “aggressive” and not to “self-edit.” Aides say he has been dismayed by the failure of his programs to have even more of an impact and disappointed by the results of federal investigations showing that banks routinely disregarded the rights of homeowners facing foreclosure.
“The president has said this has been a very difficult problem, and it is very challenging to try to mitigate and resolve,” said Brian Deese, deputy director of the National Economic Council. “It is because of that he is totally resolute on staying as focused as possible on doing every possible thing we can do to help responsible homeowners.”
In recent months, Obama has announced two plans to allow millions of Americans with government-backed loans to refinance and called for legislation to make it as easy as possible for any American to refinance.
The administration, along with state attorneys general, also sealed a $25 billion foreclosure-abuse settlement with banks last month that requires them to reduce the mortgage debts owed by homeowners, which many economists say must play an important role in healing the economy.
The administration has even begun to offer aid to some investors in properties — people whom it had previously derided as “speculators” — and now is prepared to offer additional aid to people with much more debt.
Administration officials say these reversals reflect the changing nature of the housing crisis. For instance, they have concluded that it is important to prevent homes from going into foreclosure whether owned by an investor or a family — because rising foreclosures of any kind hurt communities. However, they are also exercising caution: Only mortgages on homes that are rented out or vacant with the intention of being rented out are eligible.
Likewise, administration officials have concluded that it makes sense to be more flexible in offering help to people who are excessively indebted. This is because so many Americans have amassed hefty debts — from credit card borrowing and second mortgages in addition to first mortgages.
Not all experts agree that expanding the housing programs is wise.
“I think it risks a significant backlash. There’s a lot of jaded views about the housing package because a lot of borrowers overextended themselves. Why should we bail them out?” said Michael Lea, a visiting professor of finance at San Diego State University.
But other experts warn against such moral judgments.
“If you’re just looking to saints to reward, there’s not enough of them around to put a dent in the housing crisis,” said Guy Cecala, publisher of Inside Mortgage Finance.
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