By NICK TIMIRAOS WSJ
The Obama administration is ramping up talks on how to revive the housing market,
which is weighing on the economic recovery—and possibly the president’s re-election in 2012.
Last year, advisers considered several housing-policy prescriptions but rejected them
in favor of letting the market sort things out. Since then, weak demand and a
stream of foreclosed properties have put renewed pressure on home prices,
prompting concern within the White House.
Policy ideas include having taxpayer-owned mortgage giants Fannie Mae and Freddie Mac
relax their rules for loans to investors, allowing those buyers to vacuum up
excess housing inventory. In certain markets, Fannie and Freddie could hold some
foreclosed homes off the market and rent them out to ease the property glut.
Officials also could sweeten incentives for banks to reduce loan balances for borrowers
who are underwater, or owe more than their homes are worth.
Home-buyer tax credits worth up to $8,000 in 2009 and 2010 gave a short-term boost to home
sales, but demand plunged after they expired. Foreclosures have put pressure on
prices and damped residential construction, traditionally an engine of job
growth during economic expansions.Discussions are in early stages, and there
isn’t consensus around particular ideas. A spokeswoman said the president and
his advisers “are always looking at new ways” to strengthen the housing market
but wouldn’t disclose details. “While we continue to consider the options
available to us, it would be inaccurate to say we are proposing any of these
particular ideas at this time,” White House spokeswoman Amy Brundage said.
“As conditions change, some options that were below the line the way the market was
18 months ago might be above the line today,” said Peter P. Swire, who teaches
law at Ohio State University and until last year was a top housing adviser to
the White House.
Most of the administration’s housing efforts have focused on helping borrowers
refinance or modify their loans to avoid foreclosure. But some economists say
too many borrowers won’t be saved through loan workouts and that the
administration must do more to soak up the flood of foreclosures by boosting
housing demand.
President Obama’s signature loan-modification program, announced during his first month in
office, has lowered payments for around 600,000 borrowers. Meanwhile, around
four million borrowers are in foreclosure or have missed three or more
consecutive mortgage payments. While mortgage-delinquency rates have fallen,
millions more remain at risk of defaulting if they experience a payment shock
because they owe more than their homes are worth.
More recent housing relief has targeted unemployed borrowers. Last week, officials
said unemployed borrowers with loans backed by the Federal Housing
Administration could miss up to 12 months of payments while they look for new
jobs. A separate $1 billion program is set to begin providing interest-free
loans of up to $50,000 for temporarily jobless borrowers this month.
Unlikely to get Congress to provide additional funds, the administration is left to
examine options that it can implement without congressional consent. Fannie and
Freddie, the so-called government-sponsored enterprises or GSEs, could be one
policy lever. “There are a number of things that we can look at on the GSE
side,” said Austan Goolsbee, departing chairman of the Council of Economic
Advisers.
Last year, officials considered a range of policies that included allowing borrowers
with loans backed by Fannie and Freddie to refinance more easily by relaxing
fees that lenders are charged for riskier borrowers.
Others outside the administration have pushed for federal entities to lend more freely
to mom-and-pop investors or to create public-private initiatives that would
allow institutional investors to buy more foreclosed properties. “Because we
have limited credit availability, we need investors to help soak up the supply,”
said Ivy Zelman, chief executive of housing-research firm Zelman &
Associates.
Fannie and Freddie also could rent, instead of sell, some of their huge inventory of
foreclosed homes, which could take some pressure off prices. The firms owned
about 218,000 properties at the end of March, and sold around 100,000 during the
first quarter, or more than one-third of all foreclosed property sales,
according to analysts at Barclays Capital. The firms could take back as many as
700,000 homes over the next year, according to estimates by economists at
Goldman Sachs.
That idea has generated interest among some housing officials but could meet
resistance from Fannie and Freddie’s independent federal regulator. Renting out
homes hasn’t been tried on a wide scale and is “riddled with risk,” said Ed
Delgado, a former Wells Fargo executive who leads the Five Star Institute, a
mortgage-industry group. “Essentially you’re converting the [firms] from
providing liquidity to a glorified national landlord for distressed assets.”
All these options could boost lending and attack the overhang of foreclosures, but
would put more risk on federal agencies and Fannie and Freddie. The mortgage
giants have cost taxpayers $138 billion and counting.
They also would require the blessing of the Federal Housing Finance Agency, which is
charged with limiting losses at Fannie and Freddie. The FHFA last year refused
to go along with an Obama administration initiative to reduce loan balances for
certain borrowers who were current on their mortgages but heavily underwater.
The agency has typically resisted programs which produce substantial, upfront
losses designed to offset potentially larger but harder to quantify long-term
losses.
The same skepticism that prompted advisers last year to push for giving the market
room to heal on its own could prevail once again. Simply focusing on the broader
economy is “one of the best things we can do for the housing market,” Mr.
Goolsbee said.
Still, the high-level housing discussions are significant because Mr. Obama hasn’t put
much emphasis on his housing policies over the past year. The administration has
taken fire from both sides over its housing-relief plans, with Democrats saying
the administration has let banks off too easily while Republicans have said the
programs wasted money. The housing market could be a top election issue for
voters in swing states such as Florida, Ohio, and Nevada.
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