(photo: by gruntzooki)

The Obama Administration knows that they’re going to be cutting spending at some level over the next year, damaging economic performance coming into an election year. If it doesn’t happen on the debt limit deal, it’ll happen in the 2012 budget. So they’re looking elsewhere for how to use the power of the office to improve the economy and by association their political position in 2012. And they’ve hit on the point that the housing market is a giant lead weight on the economy. I noticed this trend a week or so ago, and now Nick Timiraos of the Wall Street Journal concurs:

The Obama administration is ramping up talks on how to revive the housing market, which is weighing on the economic recovery—and possibly the president’s re-election in 2012.

Last year, advisers considered several housing-policy prescriptions but rejected them in favor of letting the market sort things out. Since then, weak demand and a stream of foreclosed properties have put renewed pressure on home prices, prompting concern within the White House […]

Policy ideas include having taxpayer-owned mortgage giants Fannie Mae and Freddie Mac relax their rules for loans to investors, allowing those buyers to vacuum up excess housing inventory. In certain markets, Fannie and Freddie could hold some foreclosed homes off the market and rent them out to ease the property glut.

Officials also could sweeten incentives for banks to reduce loan balances for borrowers who are underwater, or owe more than their homes are worth.

Discussions are in early stages, and there isn’t consensus around particular ideas. A spokeswoman said the president and his advisers “are always looking at new ways” to strengthen the housing market but wouldn’t disclose details. “While we continue to consider the options available to us, it would be inaccurate to say we are proposing any of these particular ideas at this time,” White House spokeswoman Amy Brundage said.

Brundage wants to deny it, but you can just look at what has been done recently. HUD supplemented the Hardest Hit Fund with the Emergency Home Loan Program, offering no-interest loans to homeowners experiencing unemployment. Treasury set up its Principal Reduction Alternative to encourage banks to give principal reductions to struggling borrowers. There are indications this has spurred some principal reductions in very particular circumstances. And then there was the program announced last week for extended forbearance to 12 months for unemployed borrowers.

A couple things about the article. First, the notion that the housing market would work itself out is a perfect encapsulation of this Administration’s economic policy, where they hoped all along to be saved by the business cycle. Now, they’re realizing they have to be activists. It’s so distasteful. And while there are a few legislative constraints on the hole they’ve dug themselves in on overall economic policy, on housing policy they actually have some options that they’re exploring. Fannie and Freddie represent a large chunk of the market at this point, and as they have effectively been nationalized, they can be used to helpful ends. In particular, the policy of having Fannie and Freddie rent their properties – especially if they allow the owners to convert to renters – could be positive.

But Fannie and Freddie have resisted doing anything this ambitious, or even giving out loan modifications. The GSEs’ regulator has been touting his fiduciary duty to taxpayers, and while that has been good on repurchases of bad MBS, it also means that he has refused to do the kind of loan modifications that may look bad on the short-term balance sheet but overall would be superior to allowing a bunch of foreclosures.

This also explains the federal government’s attention to the foreclosure fraud settlement. They probably think that any money they can squeeze out of the banks would represent a housing stimulus, and they want it to come into play before the election. What they aren’t counting on is the fact that allowing the big banks to settle their claims will just rev the foreclosure machine faster.

Tens of thousands of Bank of America’s most distressed borrowers could be evicted and lose their homes more quickly as a result of a proposed settlement between the bank, which is the country’s largest mortgage servicer, and investors in its troubled mortgage securities.

“The goal is to reinstate as many borrowers in a modification that performs well,” said Tony Meola, a servicing executive with Bank of America. “It also is likely to lead to faster resolution in those unfortunate situations where foreclosure is inevitable. While not a desirable outcome, the recovery of the housing markets depends on moving through the foreclosure process as quickly and fairly as possible.”

While powerful investors stand to benefit from the $8.5 billion settlement over the bank’s bundling of shoddy mortgages as securities, the fallout for the nearly 275,000 borrowers who took out those loans depends greatly on how deep they are in the foreclosure process and whether they earn enough money to dig themselves out.

This story kind of ignores the fact that the judiciary would still have to rubber-stamp false documentation to allow foreclosures to go through, which isn’t happening in most of the country. The BofA settlement would release a lot of investor claims, but not homeowner ones. And anyway, the final settlement is many months off.

It’s interesting to me that the Administration, having made a total mess of the housing market for three years after coming in claiming to have the magic antidote to fix it, now is scrambling to find out how to do what they said they would do in the first place.

(photo: by gruntzooki)

The Obama Administration knows that they’re going to be cutting spending at some level over the next year, damaging economic performance coming into an election year. If it doesn’t happen on the debt limit deal, it’ll happen in the 2012 budget. So they’re looking elsewhere for how to use the power of the office to improve the economy and by association their political position in 2012. And they’ve hit on the point that the housing market is a giant lead weight on the economy. I noticed this trend a week or so ago, and now Nick Timiraos of the Wall Street Journal concurs:

The Obama administration is ramping up talks on how to revive the housing market, which is weighing on the economic recovery—and possibly the president’s re-election in 2012.

Last year, advisers considered several housing-policy prescriptions but rejected them in favor of letting the market sort things out. Since then, weak demand and a stream of foreclosed properties have put renewed pressure on home prices, prompting concern within the White House […]

Policy ideas include having taxpayer-owned mortgage giants Fannie Mae and Freddie Mac relax their rules for loans to investors, allowing those buyers to vacuum up excess housing inventory. In certain markets, Fannie and Freddie could hold some foreclosed homes off the market and rent them out to ease the property glut.

Officials also could sweeten incentives for banks to reduce loan balances for borrowers who are underwater, or owe more than their homes are worth.

Discussions are in early stages, and there isn’t consensus around particular ideas. A spokeswoman said the president and his advisers “are always looking at new ways” to strengthen the housing market but wouldn’t disclose details. “While we continue to consider the options available to us, it would be inaccurate to say we are proposing any of these particular ideas at this time,” White House spokeswoman Amy Brundage said.

Brundage wants to deny it, but you can just look at what has been done recently. HUD supplemented the Hardest Hit Fund with the Emergency Home Loan Program, offering no-interest loans to homeowners experiencing unemployment. Treasury set up its Principal Reduction Alternative to encourage banks to give principal reductions to struggling borrowers. There are indications this has spurred some principal reductions in very particular circumstances. And then there was the program announced last week for extended forbearance to 12 months for unemployed borrowers.

A couple things about the article. First, the notion that the housing market would work itself out is a perfect encapsulation of this Administration’s economic policy, where they hoped all along to be saved by the business cycle. Now, they’re realizing they have to be activists. It’s so distasteful. And while there are a few legislative constraints on the hole they’ve dug themselves in on overall economic policy, on housing policy they actually have some options that they’re exploring. Fannie and Freddie represent a large chunk of the market at this point, and as they have effectively been nationalized, they can be used to helpful ends. In particular, the policy of having Fannie and Freddie rent their properties – especially if they allow the owners to convert to renters – could be positive.

But Fannie and Freddie have resisted doing anything this ambitious, or even giving out loan modifications. The GSEs’ regulator has been touting his fiduciary duty to taxpayers, and while that has been good on repurchases of bad MBS, it also means that he has refused to do the kind of loan modifications that may look bad on the short-term balance sheet but overall would be superior to allowing a bunch of foreclosures.

This also explains the federal government’s attention to the foreclosure fraud settlement. They probably think that any money they can squeeze out of the banks would represent a housing stimulus, and they want it to come into play before the election. What they aren’t counting on is the fact that allowing the big banks to settle their claims will just rev the foreclosure machine faster.

Tens of thousands of Bank of America’s most distressed borrowers could be evicted and lose their homes more quickly as a result of a proposed settlement between the bank, which is the country’s largest mortgage servicer, and investors in its troubled mortgage securities.

“The goal is to reinstate as many borrowers in a modification that performs well,” said Tony Meola, a servicing executive with Bank of America. “It also is likely to lead to faster resolution in those unfortunate situations where foreclosure is inevitable. While not a desirable outcome, the recovery of the housing markets depends on moving through the foreclosure process as quickly and fairly as possible.”

While powerful investors stand to benefit from the $8.5 billion settlement over the bank’s bundling of shoddy mortgages as securities, the fallout for the nearly 275,000 borrowers who took out those loans depends greatly on how deep they are in the foreclosure process and whether they earn enough money to dig themselves out.

This story kind of ignores the fact that the judiciary would still have to rubber-stamp false documentation to allow foreclosures to go through, which isn’t happening in most of the country. The BofA settlement would release a lot of investor claims, but not homeowner ones. And anyway, the final settlement is many months off.

It’s interesting to me that the Administration, having made a total mess of the housing market for three years after coming in claiming to have the magic antidote to fix it, now is scrambling to find out how to do what they said they would do in the first place.

David Dayen

David Dayen