I will go way out on a limb here and assume everyone is aware that Barack Obama is now the President-elect. Regardless of your political leanings — left, right, centrist, or could-give-a-crap — the simple fact is that come Jan 20, 2009 at high noon, Obama will be in the White House and he’ll have lots of friends in the House and Senate.
What he thinks, and does, with regard to housing and the economy will be important.
As a real estate broker, obviously I have a vested interest in President-elect Obama’s plans for the housing market. I would think anyone else that falls under the categories of home owner, prospective home owner, home seller or renter would also have such interest. If I’m not mistaken, that is pretty much everyone.
I took a little time this morning to cobble together some of what Obama has said are his plans to address the “housing crisis”. Of course plans change and morph, and they probably should be adaptable. As of now though, here’s where the incoming administration stands, best I can tell. . .
Protect Homeownership and Crack Down on Mortgage Fraud
Obama and Biden will crack down on fraudulent brokers and lenders. They will also make sure homebuyers have honest and complete information about their mortgage options, and they will give a tax credit to all middle-class homeowners.
- Create a Universal Mortgage Credit: Obama and Biden will create a 10 percent universal mortgage credit to provide homeowners who do not itemize tax relief. This credit will provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year.
- Ensure More Accountability in the Subprime Mortgage Industry: Obama has been closely monitoring the subprime mortgage situation for years, and introduced comprehensive legislation over a year ago to fight mortgage fraud and protect consumers against abusive lending practices. Obama’s STOP FRAUD Act provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity.
- Mandate Accurate Loan Disclosure: Obama and Biden will create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.
- Close Bankruptcy Loophole for Mortgage Companies: Obama and Biden will work to eliminate the provision that prevents bankruptcy courts from modifying an individual’s mortgage payments. They believe that the subprime mortgage industry, which has engaged in dangerous and sometimes unscrupulous business practices, should not be shielded by outdated federal law.
From an interview with the National Association of Realtors (NAR) September 2008:
Q: What’s the most important action the federal government can take to ease the mortgage crisis and prevent a recurrence?
Sen. Barack Obama: For the short term, the housing relief legislation [signed by Pres. George W. Bush July 30] authorizing the FHA to refinance the mortgages of struggling homeowners is the right approach. I’ve also called for the creation of a $10 billion foreclosure prevention fund that works in tandem with state, local, and community nonprofit efforts to help households facing foreclosure renegotiate with lenders or put their homes on the market. We also need to expand the mortgage revenue bond program to give state housing agencies $10 billion in new resources to help struggling homeowners. For the long term, the Stop Fraud Act that I introduced two years ago would create criminal penalties for mortgage professionals found guilty of fraud and increase funding for federal and state enforcement of antifraud programs. I also want to see a simplified, standardized metric for calculating the costs of a home mortgage, similar to the annual percentage rate used by banks to identify the effective interest rate a borrower ends up paying on a loan.
Q: Even though prices have been easing for the last two years, housing affordability remains a challenge for many people. What can the federal government do to improve this situation?
Sen. Obama: I’ve proposed a universal mortgage interest tax credit for families that aren’t benefiting from the mortgage interest deduction. They would get an average credit of $500 a year. And I worked to pass the bipartisan homeownership tax credit. That’s a strong incentive because it gives developers a credit to bridge the gap between the cost of building a house and a sale price that’s affordable to low- and moderate-income households.
From the Congressional Black Caucus Democratic Debate (Jan 21, 2008):
On Budget & Economy: Help the homeowners actually living in their homes
It is important to make sure that we’re not helping out the speculators, but instead are helping out the homeowners who are actually living in their homes, who have the capacity to make the payments if they’re not seeing a huge increase in their mortgage payments. But understand this, this is not new. We have a history in this country of preying on low-income peoples because they don’t have access to banks. The Community Reinvestment Act is oftentimes not enforced as it should be. We’ve got to open up bank branches. We’ve got to give people access to financing so that they’re not going to a payday loan operation. I two years ago introduced a provision that would eliminate predatory lending, something that I had already helped to get passed at the state level. We’ve got to give ordinary working people access to financing. Part of the reason that they are borrowing on their homes, they’re borrowing on credit cards, is that the banks and financial institutions have dominated policy in Washington.
Obama called for the Treasury to require financial institutions receiving help from the financial rescue package passed in October to put a 90-day moratorium on foreclosures for homeowners “acting in good faith.”
He has called for a change to the bankruptcy law that would let bankruptcy judges reduce mortgage principals for bankruptcy filers. Proponents say such a change would encourage lenders to modify more loans for troubled borrowers rather than risk the loan being rewritten by a judge. Opponents say the change could cause a rise in interest rates because mortgage investors would price in the risk of new loan terms.
Obama has also called for the creation of a fund to help state and local governments ward off foreclosures. And he wants to boost penalties and law enforcement to fight mortgage fraud.
He supported the government’s takeover of mortgage giants Fannie Mae and Freddie Mac in September as a stop-gap measure. But he has called for reform of the agencies so that ultimately their public functions will be completely disentangled from their private ones.
More broadly, Obama has proposed giving a tax credit to homeowners who don’t itemize deductions and don’t get a tax break for the mortgage interest they pay.
Will these plans work? I don’t think we know. Are they the “right” or best plan? I don’t know that either. I’m not a fan of big government. There are some fundamental laws of economics that will lead to a correction of the mess we’re in. Doinking with those laws is a scary thought, but then again what’s happening in the US and global economies is pretty scary in and of itself. It may be time for the feds to step in and help. It may be past time. A leadership transition in the midst of a financial/economic crisis may be just what is needed to kick-start the economy, or it may hasten it’s decline.
I do know one thing — hang on tight, it’s going to be interesting. . .
Photo Credit: BohPhoto on Flickr