By now, everyone knows that the economic crisis we continue to slog through was caused largely by shady speculative lending. Despite inflated home prices, people who could not afford mortgages were granted them nonetheless. Many of those mortgages were of the “interest only” variety which can’t end anyway other than badly.
Since he took office, President Barack Obama has made various attempts to shore up the housing market, insisting that banks revise loan terms, adjust home values, and so on. This past January, in his State of the Union address, he outlined further plans to give homeowners support and relief. Some of the action points fold in consideration for the perpetually high unemployment rates.
In broad strokes, Obama’s plan includes:
• Broad-Based Refinancing to Help Responsible Borrowers Save an Average of $3,000 per Year
• Homeowner Bill of Rights
• First Pilot Sale to Transition Foreclosed Property into Rental Housing to Help Stabilize Neighborhoods and Improve Home Prices
• Moving the Market to Provide a Full Year of Forbearance for Borrowers Looking for Work
• Pursuing a Joint Investigation into Mortgage Origination and Servicing Abuses
• Rehabilitating Neighborhoods and Reducing Foreclosures
Foreclosed homes that sit empty don’t do anyone any good. They lead to decreased values on the neighboring homes and, because they force that many more people into the rental market, they lead to increased prices – and decreased inventory – there. On top of that, because credit is so tight, gun-shy banks are still hesitant to lend to honest-to-goodness qualified buyers, and so the houses stay vacant.
If Obama’s plan works to its full potential, it could go a decent way to bolstering the housing side of our collecetive economic woes. Of the refinancing portion, Mark Zandi, chief economist at Moody’s Analytics, notes, “The macroeconomic benefit could be significant. … Homeowners’ extra cash will quickly find its way into the economy.”
Of course, most of Obama’s ideas need Congressional approval to get underway and that’s not an easy thing to come by. The Republicans have made it very clear that they have no interest in passing anything the President wants passed, no matter how many economists back him up. And, this being an election year and all…
On the other side of the ballot, GOP Presidential candidate Mitt Romney has voiced his plan to eliminate the Department of Housing and Urban Development. That move alone would cut the safety net for low-income citizens that come via Section 8 housing vouchers and community development block grants.
Being a free market capitalist, Romney has also stated that he would not intervene in the foreclosure process on behalf of homeowners, preferring, instead, for it to “run its course and hit the bottom.” As posited last Fall, step two of Romney’s notion is to let investors buy those homes at their rock-bottom prices and rent them back to the former homeowners.
This position is perfectly aligned with the business he did at Bain Capital, so it’s easy to believe that he means what he says. And, of course, Romney famously owns several massive homes – one of which is in La Jolla, California, and comes replete with a car elevator. So to say the he might be somewhat out of touch when it comes to making ends meet is a colossal understatement.