“The next president, whoever it turns out to be, is going to have a couple of big housing issues to address,” said Barry Zigas, director of housing policy at the Consumer Federation of America. For starters, “what is the government’s role in housing finance and will consumers have access to mortgages at affordable rates?”
On the campaign trail, Obama and Romney have hinted at the next steps they’d take, though neither campaign has outlined a comprehensive proposal for recovery of the housing market and private mortgage lending.
Obama would build on his programs already underway for foreclosure relief, expanded refinancing and loan modifications, while continuing to implement new housing finance rules and consumer protections under the Dodd-Frank Act. He also supports proposed legislation that would make it easier to refinance.
“The administration has put forward a plan to help more responsible borrowers refinance their mortgages — saving hundreds of dollars per month — while taking concrete steps to help families stay in their homes, revitalize the communities hardest hit by the housing crisis, and reform the mortgage lending market to better protect both consumers and taxpayers,” Obama campaign spokesman Adam Fetcher said in an e-mail.
Romney, on the other hand, would repeal Dodd-Frank and replace it with streamlined regulations that make it easier for the private sector — especially smaller financial institutions — to reenter the mortgage market. He hasn’t outlined what those new regulations would be.
“We have to have regulation, but we need it modern and up-to-date,” he said at an Aug. 13 appearance in St. Augustine, Fla. “When you have massive regulations, it makes it harder for small banks and regional banks to be able to make the loan modifications they need to make and to also get credit to people.”
Whether you already own property or hope to buy in the future, the next president’s housing policies will affect you. Zigas and other experts suggested keeping an eye on the following areas:
The mortgage market
At the depth of the recession in 2008, a federal conservator took over housing giants Fannie Mae and Freddie Mac to avoid a real-estate meltdown. Some form of federal guarantee has backed more than 90 percent of the U.S. home mortgages originated since then.
The next president will have to decide how much of the housing market will continue to be subsidized by the federal government, and through what structure. “No one is going to propose to keep Fannie and Freddie in their current form,” said Sarah Rosen Wartell, a housing expert and president of the Urban Institute.
The decision will have a huge influence on the housing market and the price of real estate, both for the lower end of the market that competes with affordable rental housing and the higher end that has lagged, partly because of lower limits for the size of mortgages that can be purchased and resold by Fannie and Freddie.
The Obama administration last year outlined three possible ways to replace the role Fannie and Freddie play in the mortgage market, but did not choose one. Since then, the administration has changed rules and limits to continue to pare away at the two housing firms. On Aug. 17, the government announced a renegotiated conservatorship agreement for Fannie and Freddie that puts them on track to shrink faster than anticipated, about four years ahead of schedule.
Romney also would wind down the housing giants’ portfolio, counting on private investors to replace the government backing. But neither candidate has proposed an alternative model.
Obama supports a continued federal tax deduction for mortgage interest, although his fiscal 2013 budget would limit the mortgage deduction for taxpayers making more than $250,000. Romney, meanwhile, chose Paul Ryan as his running mate, someone who has expressed support for eliminating tax breaks such as the mortgage deduction in favor of a simpler tax code and lower rates overall.
On top of this is the question of foreclosure relief. With one-quarter of American homeowners owing more on their mortgages than the property is worth, we’re hardly out of the woods, said Guy Cecala, publisher of Inside Mortgage Finance, a mortgage industry research and publishing firm.
“The bottom line is a lot of people are facing foreclosure because they can’t afford their mortgage, and unless you want to give them a free mortgage you can’t resolve that,” Cecala said.
Both Obama and Romney support the government selling some of the 200,000 foreclosed-upon homes owned by Fannie, Freddie and the Federal Housing Administration and converting them to rental housing. The Obama administration announced this year it will begin pilot sales of these homes.
“Let’s get them out of the government’s hands and put them back in the hands of the public,” Romney said in his St. Augustine speech. His campaign says converting vacant, foreclosed homes into healthy rental properties will boost home prices. Every 5 percent increase in home values means about 2 million fewer underwater properties, cutting the number of potential foreclosures as well.
Romney has also expressed support for the idea — promoted by former House speaker Newt Gingrich in the Republican primary debates — of more aggressively exploring foreclosure alternatives such as short sales, deed-in-lieu transactions and shared appreciation.
The administration’s mortgage modification program has helped more than 5 million homeowners modify loans and stave off foreclosure, while the refinancing program has assisted more than 1.3 million people between April 2009 and May 2012, according to government reports.
Obama also proposed providing $15 billion to local communities to partner with the private sector in buying and rehabilitating foreclosed houses and expanding refinancing to homeowners whose mortgages are not held by government-backed entities. Both measures would require legislative approval.
“We’ve got historically low interest rates now, and the housing market is beginning to tick back up but it’s still not at all where it needs to be,” Obama said at an Aug. 20 press briefing. “We’re going to be pushing Congress to see if they can pass a refinancing bill that puts $3,000 into the pockets of the average family who hasn’t yet refinanced their mortgage.”
As the federal government has worked to right the housing market and reduce the amount of bad debt, down payments have steadily increased. Some of the rise results from financial institutions tightening their standards. But the government also sets required down payments in many cases.
The next administration will decide whether to continue increasing the amount of money needed to buy a home or whether it’s time to loosen the standards to encourage a rebound in residential real estate.
At a time when mortgage rates are at all-time lows and housing prices are reasonable, many households that could benefit the most can’t get credit or can’t afford down payments, Zigas said. “What you’re seeing is a continuation of the credit crunch that emerged in 2009,” Cecala said. “Mortgage credit, in particular, is very tight and tough to come by.”
In Romney’s view, credit is scarce because lenders are unsure how they’ll be affected by the new mortgage and housing finance rules being implemented under the mammoth Dodd-Frank Act.
A second Obama administration or Romney would take over “with the market adjusting to these new rules,” Zigas said. “There are some who say it’s going to lead to a contraction in mortgage credit. I don’t believe that.”
In the end, so many other parties are involved in crafting mortgage-market policy and implementing it that differences between Obama and Romney would be muted. Not only are other administration officials and lawmakers involved, but also think tanks, academic researchers, consumer advocates and representatives of all corners of the financial sector.
“The starting positions of President Romney or Obama are likely to be different, but the legislative process will lend itself to compromise,” Wartell said.
One of the Obama administration’s signature actions has been the creation of the Consumer Financial Protection Bureau, the first financial regulator charged with protecting consumers from fraud, abuse and misrepresentation of mortgages and other financial products. Many Republicans have sharply criticized the CFPB and its power.
“Romney has staked out that he’s opposed to the regulation, he wants to reduce it and roll back Dodd-Frank and limit the CFPB’s authority,” Cecala said.
While it’s unlikely that a Romney administration would eliminate the new agency, it would certainly take a very different approach to regulating consumer finance and how much leverage Wall Street enjoys.
“There’s a stark difference in rhetoric around the Consumer Financial Protection Bureau. But I think it is unrealistic regardless of administration to unwind the bureau,” Wartell said. “Much more likely under Romney would be structural changes, less autonomy, less independence.”
The bureau implements rules about which mortgages would be eligible for government backing and standards for mortgage industry professionals. Its officials also have power to take enforcement action against companies they contend are violating consumer rights. For instance, the agency gave advice to state attorneys general in the national mortgage servicer settlement and is continuing to probe the mortgage insurance business, among others.
“Our focus is on reforming the mortgage market system in a way that’s going to, over the long term, provide more stability and continued access to mortgage finance for middle-class families, but is also going to get serious about addressing the dramatic failures,” said Brian Deese, deputy director of the National Economic Council. “For a borrower, it means we’re no longer going to have an industry where you can get tricked into loans you can’t afford.”
Repairing the economy
Ultimately, the future of the housing market is inextricably tied to the economy.
The more that people have well-paying jobs and can afford larger homes, the better the real-estate market will fare. In a healthy economy, the market would be more able to absorb the homes that are currently underwater and not for sale, and thus are exerting a drag on the economy, Zigas said.
Moreover, the path the next administration sets for addressing federal budget deficits and the national debt will determine how much money will be available for affordable housing, foreclosure prevention and homeownership initiatives.
Regardless of which candidate wins, some hard choices must be made about how to allocate funds to subsidize mortgages, prevent foreclosures, make rental housing affordable and other competing goals.
“In the context of not being able to help working Americans, I think the next administration is going to have to come to terms with what is an equitable housing policy — how to use those resources,” Zigas said.
It’s fair to say that almost everything having to do with a standard residential mortgage hangs in the balance of the election.
“The outcome of the election could affect what price you pay, whether you have such a product as a 30-year mortgage at a reasonable price, whether you have access, and whether the entire mortgage market is going to be served rather than just higher-income individuals,” said Mark A. Willis, research fellow at New York University’s Furman Center for Real Estate and Urban Policy.
Katherine Reynolds Lewis is a freelance writer.