On Super Tuesday, as Republican presidential primaries are contested in 10 states, the White House took the opportunity to show what President Barack Obama wants to do to help responsible homeowners and support the housing market recovery by introducing two new measures.
Saying that the government “cannot fix the housing market on its own,” Obama used his first press conference of the year to reiterate his belief that responsible homeowners “should not have to sit and wait for the market to hit bottom to get relief when there are measures at hand that can make a meaningful difference.”
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The two steps from the detailed White House fact sheet announced today are:
- Provide relief for service members and veterans, including those wrongfully foreclosed upon or denied a lower interest rate on their mortgages
- Reduce fees for FHA borrowers looking to refinance.
The White House says these two new measures amplify policies outlined in Obama’s 2012 State of the Union address in January. The announcement comes on top of the historic settlement completed by the Federal government and 49 state Attorneys General last month, when it was agreed that five of the biggest lenders would pay upwards of $26 billion in fines and principle reductions.
Despite the attempt to stem further losses and remediate fraudulent foreclosures, this new plan for veterans and service members does not address the deep, underlying issues that have erased more than a trillion in housing equity.
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According to Zillow Chief Economist Dr. Stan Humphries, the White House’s latest plan will not have make any significant strides to remedy the overall health of the housing market.
The policies announced today are largely a political move during an election year, and won’t do much to move the needle on a still-struggling housing market, although it will help a select group of deserving individuals in the military.
Looking at the big picture, though, the reduction of FHA fees runs counter to the strategy laid out in the Administration’s housing policy blueprint last year, which called for gradually decreasing the Federal role in housing by increasing FHA fees and down payment requirements. It’s not the first time that long-term objectives have been compromised in the midst of an election year.
Fundamentally, the FHA fee changes won’t be targeted to just those homeowners most at risk of default: those who are underwater on their mortgages. From this perspective, the refinancing plan Obama announced in the State of the Union address – allowing underwater homeowners with mortgages not backed by Fannie, Freddie or the FHA to refinance through the FHA – would better target those most likely to default but would do so at the cost of moving homeowners with the highest credit risk from the private sector balance sheet to the public balance sheet. The trouble is that this policy may help many underwater homeowners but do so in a way that lets private institutions off the hook again for losses.