Out of Their Depth

The plummeting housing market and the recession that followed had slammed blacks and Hispanics much harder than it had whites. The Pew Research Center has released data showing that Hispanic households lost 66 percent of their net worth during the recession compared with a 16 percent loss by white households. “With Gene over at NEC, he made this a big priority, and he has since he’s been there,” said Janis Bowdler, the director of wealth-building policy at La Raza.

A significant shift in the administration’s messaging on housing and Obama’s engagement on the problem followed Sperling’s move. As the months ticked toward election season, the White House began to see housing not only as a dire problem still in need of attention but also as an issue on which they could draw a beneficial contrast with Republican presidential hopefuls, all of whom contended that the government should stay out of the housing market. Indeed, only a few months later, Mitt Romney would tell a Nevada newspaper, “Don’t try and stop the foreclosure process. Let it run its course and hit the bottom.”

The president himself publicly launched what would become a freshly aggressive campaign on housing on July 6. Responding to a question posed at a Twitter town hall, Obama admitted his team’s efforts to help struggling homeowners were “not enough … so we’re going back to the drawing board.”

The White House will not say when Obama instructed his advisers to reconsider what had been done to address the nation’s housing woes and come up with more far-reaching approaches—and it rejects the notion that politics played a role in the president’s July remarks. “The headwinds facing the economy from the housing market were stronger than estimated and showed their particular force last year as the recovery slowed,” said spokeswoman Amy Brundage, “which is why the president directed his team to redouble its efforts in this area.”

But what has followed appears to be an effort to activate several measures that had been percolating among housing-policy experts for months and, in some cases, years.

Among them are tweaks to the Home Affordable Refinance Program; a $25 billion settlement between states and the five biggest lenders; increased incentives for lenders to reduce principal under the Home Affordable Modification Program; and a large refinancing push that requires congressional action. The president also promised this year to spend the full $45.6 billion allocated for housing, but the administration anticipates that it will take until 2019 to dole it all out.

None of these ideas is new, nor is the availability of those billions of dollars in relief funds. Every initiative that Obama’s team has announced since his confession in July was debated by senior advisers and their aides in the earliest days of his administration—a time when the White House and Treasury stood a chance of getting in front of a crisis that would yield 2.9 million foreclosures over the course of Obama’s presidency.

Lost in the hand-wringing and hesitation, the management failures and the missed opportunities, have been some small success stories. The administration was able to restructure and standardize the loan-modification process. Through HAMP, almost 1 million homeowners have seen their mortgages modified. Another 2.7 million mortgages have been modified outside of HAMP, based on the model that lenders learned through the government program. (Even here, the Obama team can claim only partial credit because the Federal Deposit Insurance Corp. first developed the model in 2008.) And with the settlement between lenders and state attorneys general, the federal government has brokered the start of a process that will create uniform mortgage-servicing standards.

But the intense pain wrought by the housing crisis continues, and Obama’s policy efforts have not brought relief to a great number of people who needed it and expected it, based on the administration’s own projections. It was not for want of effort, or sincerity in purpose. If anything, the work carried out over three years by scores of policy advisers, sector experts, and economists within the White House, Treasury Department, and housing agencies attest to the intense focus paid to halting the nation’s housing meltdown. But that intensity was not matched by an equal commitment at senior levels to prioritize housing, propose dramatic efforts that might have gotten the administration ahead of the problem, or engage in the political battles to advance the initiatives that economists viewed as the most necessary.

The policy makers knew this all along. They knew there was more that might have been done sooner—more aggressive steps such as whole-loan purchases or broad-based principal reduction. The decision to go with the lighter options was, by most accounts, a conscious one. “I think the president really wanted to do something aggressive and meaningful here, and I just think Larry and Tim were not as committed to it,” the FDIC’s Bair said. “It was not a priority for them. They were focused on the big financial institutions. I think they just wanted to get a program and a press release out to make the president happy.”

Niraj Chokshi contributed

This article appears in the March 24, 2012, edition of National Journal.

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