Out of Their Depth

LOST OPPORTUNITIES

Amid the administration’s persistent struggles to help homeowners, as 2009 drew to a close, the housing market, along with the rest of the economy was looking up. A string of improved data in the first quarter of 2010 generated some cautious optimism within markets and among economists. The stock market exhibited a similar pattern. At the White House, officials quietly began to feel that success might be within reach. Sales of existing homes had tracked higher through 2009 and into 2010.

It wouldn’t last. At the end of April, American markets dove—the Dow Jones industrial average and Standard & Poor’s 500 index dropped more than a tenth of their value between April and June—as a debt crisis erupted in Europe. The bottom dropped out from under the U.S. housing market and the economy began an ugly, aggressive spiral downward that would not show signs of bottoming out until the end of 2011.

Although the sinking economy might have been viewed as a call for the housing-policy group to redouble its efforts, the opposite occurred. Housing slid precipitously down the administration’s priority list. Fresh worries about a double-dip recession led the White House economic team to place a greater focus on strengthening the job market. Fix unemployment, and housing will follow became the sentiment prevalent among economic officials in those months. What’s more, the administration was using its political muscle to push the Dodd-Frank financial regulatory-reform bill through Congress. Officials had little time, or will, to do much more than muddle along with the existing, though underperforming, housing programs.

The administration advanced some important housing measures, to be sure. But the mortgage industry, housing experts, and borrower advocates largely count 2010 as a year of lost opportunity. And squandered money.

Obama’s team fumbled badly with the funds appropriated for a variety of housing programs that year under Dodd-Frank. The law, for example, made $1 billion available for an emergency program meant to keep unemployed people in their homes. The money had to be out the door by a date certain, about a year after Obama signed Dodd-Frank. But HUD delayed issuing the application requirements, giving would-be beneficiaries only weeks to assess qualifications, apply, and submit the necessary paperwork. In the end, half of the allotted amount for that program went back to the Treasury, unused. It was not the first nor the last time that the government failed to use all the money at its disposal for housing. In fact, by the end of 2011, the Obama administration had spent just $3 billion of the $45.6 billion allowed for housing under TARP. Another $8.7 billion has been set aside to cover incentive payments to lenders and investors for loans now in the program.

“Having said the financial crisis was the priority, after Dodd-Frank, there was no excuse,” said Judith Kennedy, president of the National Association of Affordable Housing Lenders. “2010 could have been a pivotal year.”

Administration officials have a hard time explaining why funds went unspent, both from Dodd-Frank and TARP—or why they never came close to a written commitment that Summers made on Jan. 15, 2009, to spend $50 billion to $100 billion on “a sweeping effort to address the foreclosure crisis.” The voluntary mortgage-modification program paid lenders based on performance, and the estimated funding for that major initiative was based on an assumption that several million more borrowers would see permanent relief under HAMP than ultimately did. Had that program hit its goal, those officials say, Washington would have paid out a much bigger chunk of the available billions.

A COURSE CORRECTION

By early 2011, labor unions, civil-rights groups, and housing advocates—Obama’s political base—had seen enough. They were frustrated, and in some cases, enraged, by the administration’s failure to find a way to ease homeowners’ financial suffering. With anger mounting, Geithner held the Jan. 13 meeting at Treasury.

After the participants voiced their complaints, Wade Henderson, president of the Leadership Conference on Civil and Human Rights, urged Geithner to make some commitments, saying that the session could not be just a “meet-and-greet.” According to numerous attendees, the Treasury secretary promised that he would support a six-month mortgage-forbearance period for the unemployed and that he would in good faith consider extending it to 12 months. He took care of the six months, but it was Gene Sperling who now gets credit for the 12.

Obama grabbed Sperling from Treasury, where he was Geithner’s adviser, and brought him to the White House to succeed Summers as director of the National Economic Council in early 2011. With that shift, the center of influence on housing policy moved up Pennsylvania Avenue. It was Sperling, according to numerous government and advocacy sources, who recognized the political risk created by earlier, troubled policies and Geithner’s reluctance to embrace some of the more-aggressive options available. And it was Sperling who understood the importance of what the advocacy groups were saying and the potential election threat to the president.