New aid for housing market

New aid for housing market

October 27th, 2011 in Opinion Times

Economists and politicians generally agree that the deflated housing market continues to be a major drag on the economy. Yet there's been no bipartisan agreement on how to help beleaguered Americans whose mortgages are now higher than the current value of their homes, but who are still making their payments.

Homeowners who are still paying their monthly notes on such under-water mortgages not only face the dismal prospect of investing good money after bad every month. They also typically find it impossible to refinance their mortgages at today's much lower rates. Lenders typically deny refinancing precisely because they are under water, though such a move which would help stabilize the housing market by elevating market values. It would also help the general economy by putting some money back into the pockets of strapped homeowners, who could then increase consumer spending.

At last, some help from the Obama administration is on the way for some of these homeowners. Under an expansion of a mortgage refinancing program, up to two million homeowners whose under-water mortgages are financed by the government-owned mortgage companies Freddie Mac and Fannie Mae will be now able to refinance their mortgages regardless of their current lower market value.

Qualifying homeowners would have to meet at least two significant conditions: They would have to have made at least six consecutive monthly payments on their mortgage, and they could have had only one missed payment in the last year. Those conditions are markers of homeowners who have worked responsibly to meet their financial obligations, and who thus deserve financial aid.

Millions of homeowners have simply walked away from their homes because their mortgage costs exceeded the value of their homes, and they saw repayment as a losing proposition. Other defaults have flowed from homeowners who lost their jobs and couldn't keep up their payments, and who couldn't qualify for refinancing or find a buyer for their houses.

The result has been a deluge of foreclosures -- an estimated six million since 2008. The glut of foreclosures has, in turn, depressed housing values, distorted the housing market, caused a decline in house prices, home equity values and property tax revenues, and generally dampened consumer spending and the broader economy.

The Obama administration's efforts to intervene have been hindered by legislative conflict. Though the economy won't turn around until the housing market turns up, Republican lawmakers and narrowly focused banks have generally resisted vigorous housing aid programs and partial loan forgiveness on mortgage balances to help stanch the damage and restore the economy. Homeowners now in jeopardy, they contend, took financial risks knowingly, and don't deserve much aid.

Democrats, conversely, have argued that many troubled mortgages came as the result of reckless lending by banks and brokers who knew their clients were being misled and exploited. More vigorous help is merited, they contend, to defer or limit housing debt and to help the economy -- locally and nationally -- to recover. Given what we now know about the toxic mortgage derivatives that big commercial and investment kited to rake in unmerited billions, the Democratic logic should prevail.

Given the legislative stalemate, however, the Obama administration's hands are tied, and the latest effort is necessarily modest. It comes on an executive order to avoid a legislative battle, but that constrains it to voluntary agreements with banks that brokered qualifying loans. It is a start in the right direction, but with Republican cooperation housing aid could be much broader, and the economy could recover much more quickly.