Thursday, February 2, 2012

Obama’s housing plan, piece by piece

by Ethan Handelman, National Housing Conference

President Obama’s announcement of his housing plan was welcome, but it includes more pieces than brief news coverage necessarily notices. Secretary Donovan provided much helpful detail in his remarks, and the fact sheet is a good reference. If you’re looking for a place to start, here’s a quick guide to the parts of the plan and what they might mean for communities and households across the country.

The Obama Administration's Housing Proposals – Topics

Refinancing plan Homeowner Bill of Rights Pilot REO property sale
Forbearance Lending abuse task force Rebuilding neighborhoods

Refinancing Plan

Homeowners with underwater loans have had trouble refinancing—not surprising, since it’s hard to get a lender to make a loan larger than the value of the house. The Home Affordable Refinance Program (HARP) has addressed some of the problem for loans owned or guaranteed by Fannie Mae and Freddie Mac, parts of it are still rolling out. The Federal Housing Administration (FHA) has a program for refinancing its own loans. But that leaves a large section of the market still without any good option for refinancing.

So, the President has proposed allowing FHA to refinance underwater loans, using a streamlined process to help homeowners lower their payments and avoid foreclosure. It’s a heavy lift, however, as it would a) cost money, proposed funding from a tax on banks, b) add underwater loans to the FHA portfolio, albeit in a separate insurance fund, and c) require legislation (particularly difficult to get in an election year).

Homeowner Bill of Rights

Despite the name evocative of 1791, this is a set of mortgage servicing standards aimed at correcting problems highlighted by the recent mortgage crisis. The announcement included only the broadest strokes here, and various parts of the government and mortgage industry have been working on these issues of disclosure, conflict of interest, and fair treatment for many years. Expect concrete details to emerge only when a settlement of the state attorneys-general lawsuit comes out, and watch the new Consumer Financial Protection Bureau for implementation details, especially around disclosure.

Pilot Sale of REO

Among Fannie Mae, Freddie Mac, and FHA, the government owns over 83,000 homes from foreclosures, with potentially hundreds of thousands more to come. Sales of these through traditional listings have been steady but slow, even with the help of the important First Look program. The longer these homes sit vacant, the more neighborhoods suffer and the slower the recovery in housing markets.

Back in August of 2011, the Federal Housing Finance Agency (FHFA) and HUD began with a Request for Information as they tried to design a way to move these REO properties more quickly into use, such as through selling groups of properties to investors who would then rent them out. Many groups, including NHC’s Foreclosure Prevention and Neighborhood Stabilization Task Force, offered perspectives, notably on how to make sure the disposition program protected vulnerable communities and created greener and more affordable housing. FHFA has finally begun pre-qualifying investors, who have to show they can responsibly acquire and manage properties. Expect this program to emerge gradually over the year, starting with a pilot in one or two metro areas, with ongoing engagement by stakeholders to refine the program design.

Forbearance for the Unemployed

Giving unemployed borrowers hurt by the recession time to get back on their feet helps avoid foreclosures—it’s a good move for lenders, communities, and households. The President’s statement is more an observation that private lenders have followed the example set by Fannie Mae and Freddie Mac in extending forbearance to 12 months (up from 3 months) rather than an new policy announcement.

Task Force to investigate mortgage abuses

The new task force brings together federal and state officials, “responsible for investigating misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities” in the words of the fact sheet. Although the task force has issued subpoenas, little else has been released about its plans or how that intersects with existing investigations. Once the seemingly ever-imminent settlement between state attorneys-general and major servicers is finally behind us, there may be more clarity. Watch for more.

Rebuilding neighborhoods and preserving affordable housing

Foreclosures are still damaging communities across the country, but the Neighborhood Stabilization Program (NSP) has proven that targeted action can halt and repair that damage. By renovating homes, helping former owners remain as renters, eliminating blight, and other innovative solutions, communities have done much to find solutions to the foreclosure crisis. The President’s proposal for Project Rebuild would expand on the work of NSP, providing more resources on a broader range of activities—help that communities very much need. The President is also proposing $1 billion for the National Housing Trust Fund, to preserve essential rental housing for extremely low income households.

It’s exactly what’s needed, but these steps do require federal funds and legislative action, which can be difficult to muster in an election year with fiscal constraints. That said, the benefits should be visible regardless of one’s partisan affiliation. Project Rebuild in particular would sustain and expand efforts to preserve neighborhoods and essential affordable housing, building on the proven NSP program. It’s an investment we ought to make.

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