December 15, 2013

Keeping The Money Flowing More Freely

A reader suggested a topic on the latest change in Washington. “What are the housing policy implications of turnover at the top of the FHFA?”

From NPR. “Seven months after his was nominated, the U.S. Senate this week confirmed former Rep. Mel Watt, D-N.C., to head the agency that oversees Fannie Mae and Freddie Mac, the giant companies that control much of the mortgage market. The vote occurred after Democrats changed the rules on filibusters — now the Senate can confirm presidential nominees with a simple majority. For people who watch the U.S. housing market, Watt’s confirmation is a very big deal that could mean easier credit.”

“Edward DeMarco, the official who has been in charge of the FHFA, has been controversial. He locked horns with the Obama administration. The administration wanted to use Fannie and Freddie to help more Americans refinance after millions of them were stuck in high-interest-rate mortgages. Democrats said letting those homeowners refinance would help stimulate the economy. DeMarco was seen as dragging his feet or outright blocking some of those efforts.”

“DeMarco was starting to wind down Fannie and Freddie and tighten credit. Watt is expected to keep the money flowing more freely to the mortgage market.”

The American Genius. “Watt has been and continues to be at the center of various controversies, for example, Watt supports the Stop Online Piracy Act (SOPA), mocking critics by saying that it is ‘beyond troubling to hear hyperbolic charges that this bill will open the floodgates to government censorship.’”

“Watt was found guilty of racial gerrymandering in his district in 1994 and his response to a 2009 investigation by the Office of Congressional Ethics was to slash funding for the Office, even though he was cleared of wrongdoing. Nearly a decade ago, he went head to head with Ralph Nader who demanded and never received an apology for Watt’s racist rant, allegedly stating, ‘You’re just another arrogant white man — telling us what we can do — it’s all about your ego — another [expletive] arrogant white man.’”

“In 2009, Ron Paul’s bill HR 1207 called for mandatory audits of the Federal Reserve, and in subcommittee, Watt altered the bill so substantially that all audits were essentially removed, a move which Paul said left nothing ofthe original bill. When Paul called for the bill to be restored, Chairman Barney Frank sided with Watt. The stripping of the bill was suspect as Bank of America is headquartered in Watt’s district and threatened to leave.”

From Reuters. “By Elyse Cherry. Most news stories today focus on overall foreclosure numbers dropping and home prices rising, but the truth is more nuanced. Prices are indeed up in some wealthier neighborhoods, and foreclosures are dropping in many communities.”

“But the big foreclosure statistics don’t include the significant number of delayed foreclosure proceedings still pending, and don’t capture the realities facing many communities with high concentrations of poverty. In these communities, where predatory lending practices were commonplace during the bubble, homeowners still need help, and vacant homes are commonplace. The effect on the overall housing market and local business is clear, as struggling owners hold back the consumer spending that drives our economy.”

“Even the oft-cited ‘improving’ national numbers remain far worse than they were before the bubble. There are 1.3 million homes in some state of foreclosure or owned by banks. The foreclosure crisis continues — and it affects us all.”

“Too much of our policy on the foreclosure crisis has been driven by a misplaced emphasis on ‘moral hazard.’ Experience shows that these homeowners are not the irretrievable deadbeats that some creditors claim them to be. The entire U.S. economy was taken in by the housing bubble. At my organization, we have learned that our clients pay on time when given a loan payment that they can afford.”

“It makes no sense to sacrifice our entire economy in the name of a single ideological principal, which has hardly been enforced consistently over the last decade. When this same crisis threatened the livelihood of our largest financial institutions, moral hazard was put aside in the name of economic stability, and the government provided generous aid packages to help them weather the storm. The role our homeowners, families, workers, and local small businesses play in the economy is deserving of equal respect. Moral hazard should not be our first concern; we need to stay focused on the best choice for the big picture.”

“Currently, in the name of moral hazard, the FHFA — which Watt will run if his appointment is confirmed — prevents homeowners who have loans backed by Fannie Mae and Freddie Mac from taking part in programs that reduce the principal owed on a mortgage. My organization has had great success by buying homes at or beyond foreclosure and reselling them back to struggling homeowners with mortgages they can handle. But we are currently barred from working with any of Fannie and Freddie’s legions of underwater borrowers because the FHFA refuses to allow the government-sponsored enterprises to sell homes — even in foreclosure — to firms like ours, which offer borrowers a reduced principal balance.”

“Banning participation in principal reduction only prevents Fannie and Freddie from recouping some of their losses, and forces homeowners to remain in unwinnable situations. We have been able to reduce our clients’ monthly mortgage payments by almost 40 percent on average, and they overwhelmingly pay their new mortgages on time. Fannie and Freddie are strengthened by getting a fair market price for loans in foreclosure, without the costs associated with repossessing and reselling the homes.”

“We need new leadership at FHFA so we can have a clear, real conversation about what works, what doesn’t, and what’s right for our communities and our national economy.”

Bits Bucket for December 15, 2013

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