Obama’s mortgage plan: Yes it can in GN

Obama’s mortgage plan: Yes it can in GN

Riding around Great Neck on a grey February day, I was struck by how shabby so many homes are, even in zip codes that register among the most affluent in America.

The peeling paint, decaying window frames, rotting roofs make real the claims of financial stress we have heard at school budget meetings over the last couple of years when the property taxes are on the agenda.

Even though Great Neck has not seen the epidemic of foreclosures that have resulted in tens of millions of families losing their homes, many still struggle under the weight of mortgages taken when housing prices were at a peak and interest rates were much higher. In families where something has cut into income – even when the income was in the high six-figures – there is real desperation, especially when you have to come up with property taxes that amount to the average income of a family.

The solution might be to sell off that major asset, but many are trapped, quite literally house poor, because they find themselves in homes where the outstanding mortgage exceeds what it can be sold for.

Up until now it was impossible to refinance or sell in order to get relief.

The collapse of the housing market which had been allowed to bubble to nuclear proportions is what put the economy on the brink of collapse. But unlike the Internet bubble, housing is so fundamental in our economy and our society, the inability to restore vitality is the singularly greatest restraint on any return to growth and jobs creation.

The market is constipated for a number of reasons.

You would think that Long Island baby boomers who have been “excessed” from their jobs and unable to get new ones, would simply take an early retirement by selling off their high-priced homes for homes at fire-sale prices in Florida. Alas, there is no one to sell to, so what might have been a natural flow to Florida is also dammed up.

Even where there are those who are ready and willing to buy our Great Neck homes find themselves up against banks that have become so tight-fisted with loans, denying even credit-worthy buyers a mortgage. That means the only homes that are selling are those that are so under-priced (for example, foreclosed), they can be purchased for cash and used primarily for speculation rather than for a stable home. This perpetuates cycle: houses aren’t selling, meaning that the economy does not have that burst of consumer spending that comes when people move to a new house, so businesses do not hire without clear demonstration of demand.

This is particularly the case for Long Island, where so much of our suburban economy revolves around consumer spending (sales tax revenue is 40 percent of Nassau County’s revenue) and so much of spending revolves around our homes.

Many of us were critical of the bank-bailout fashioned under the Bush/Paulson regime, that gave banks billions without any stipulations of refinancing homeowners who were defrauded into subprime mortgages so they could keep their homes. Instead of the banks returning the favor taxpayers extended in bailing them out, and doing what they could to help the American homeowners, they unleashed the greatest avalanche of foreclosures seen since the Great Depression, many using robo-signing processes that wound up taking homes of owners they did not have the right to foreclose.

GOP presidential candidate Mitt Romney’s solution to the foreclosure process, as he has stated, is to “let the market find the bottom,” where speculators can swoop in and convert the foreclosed properties to rentals.

Others hope for a solution that will see housing prices return to where they were before the bubble burst.

But housing prices were artificially high, compelling families to have two earners and then some in order to support the house – which more than anything is why the unemployment rate remains persistently high. Under this pressure, the loss of a job or even a reduction in income, is devastating.

A fairer solution would have been to let the homeowners refinance at the low interest rates that the banks were getting. Apparently, the mortgage holders were selling off the liens first for 95 cents on the dollars, then 50 cents on the dollar, then 35 cents on the dollar. Why not sell to the homeowner for that amount? The homeowner would probably have qualified for refinancing at the lower amount, before the house was taken in foreclosure and the family evicted.

President Obama has attempted on four different occasions to introduce programs to help homeowners. And while the hope that the plan would help 9 or 10 million homeowners did not materialized, one million homes were saved outright and another five million foreclosures have been averted.

This month, President Obama proposed an even more comprehensive program that could materially help those in our community or our children who may well be looking for their first house, and certainly would help Nassau County’s economy. That is, if Congress goes along (unlikely).

The plan that Obama is proposing is directed specifically at homeowners who are current in their payments – not those who have walked away from making payments or speculators who bought multiple houses intending to flip them at a profit.  “It’s not designed for those who’ve acted irresponsibly, but it can help those who’ve acted responsibly,” he said.

The program would save homeowners thousands of dollars a year on their mortgage payments by refinancing at historically low rates.  “No more red tape.  No more runaround from the banks. And a small fee on the largest financial institutions will make sure it doesn’t add to our deficit.”

Obama called for a Homeowners Bill of Rights, “one straightforward set of common-sense rules of the road that every family knows they can count on when they’re shopping for a mortgage. No more hidden fees or conflicts of interest.  No more getting the runaround when you call about your loan. No more fine print that you used to get families to take a deal that is not as good as the one they should have gotten. New safeguards against inappropriate foreclosures.  New options to avoid foreclosure if you’ve fallen on hardship or a run of bad luck.  And a new, simple, clear form for new buyers of a home.”

The Obama Administration is also introducing steps to require a year-long period of forbearance, enabling homeowners who have lost their jobs to defer mortgage payments “because as we know and a lot of families know, that empty house or ‘for sale’ sign down the block can bring down the price of homes across the neighborhood,” he said.

“We’re working to make sure people don’t lose their homes just because they lose their jobs. These are steps that can make a concrete difference in people’s lives right now.”

There are elements of the plan to turn more foreclosed homes into rental housing, which can be a boon for some communities, which overall would strengthen the regional economy.

Another aspect of the program focuses on putting Americans back to work rehabilitating and refurbishing hundreds of thousands of vacant and foreclosed homes and businesses. Obama is seeking to invest $15 billion in the national effort, called Project Rebuild.

In addition, Obama’s proposed budget will provide $1 billion in mandatory funding in 2013 for the Housing Trust Fund to finance the development, rehabilitation and preservation of affordable housing for extremely low income families.

These approaches will not only create construction jobs but will help reduce blight and crime and stabilize housing prices in areas hardest hit by the housing crisis.

There are potentially 11 million additional  families with Fannie Mae or Freddie Mac mortgages who will have the opportunity, if they choose to, to refinance under this program.

Housing and Urban Development Secretary Saun Donovan, elaborating on the program during a press briefing, said, “There is broad recognition, economists on all sides of the political spectrum have recognized that a broad-scale refinancing effort is one of the most important things that we can do not only for families and for the housing market but also for the economy more broadly – that for the average family, $3,000 more a year in their pocket every year they pay their mortgage is like a significant tax cut and would boost consumer spending. 

“It also has the effect of making it easier, obviously, for families to pay their mortgages and therefore reduces defaults, reduces foreclosures and helps to lift house prices as a result.

“And so there’s broad recognition that this would be good for the housing market and good for the economy. 

“And by the way, Fannie Mae and Freddie Mac and FHA, because of the scale of their portfolios that we already hold, improvements in the housing market would be dramatically good for the taxpayer as well, because it improves the value of all the investments that we already have. So on a broad basis, the primary reason we’ve proposed this is because this is smart economic and housing policy.”

The plan being proposed helps families who do not hold a Fannie Mae or Freddie Mac or an FHA mortgage – families that were previously left out of efforts to help homeowners.

As for the likelihood that the Republicans in Congress have declared the president’s proposals dead on arrival, Secretary Donovan said, “We’re not just depending on Congress.  Most of the steps that the president discussed today, whether it’s the steps with properties – the REO properties that I talked about in the shadow inventory – those are steps that we can take on our own.  The steps that we’ve already taken to help Fannie Mae and Freddie Mac borrowers refinance, steps that we will take as part of this to help FHA borrowers refinance, the Homeowner Bill of Rights – and I could go on – all of these are steps that we can take and we are taking, because we can’t wait for Congress on these.”

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