President Obama’s housing proposal reflects campaign strategy more than a viable policy agenda, as the administration tries to flip the struggling housing market from economic liability to political asset with a long-shot plan that Chicago can argue is better than the GOP alternative: no plan at all.
The White House initiatives, announced on Wednesday, aim to help “responsible homeowners” refinance into cheaper loans while promising to deny speculators who sought to make a quick buck flipping properties from benefiting from government support. The administration plan also promises, again, to hold lenders accountable for misdeeds that fueled the financial crisis.
But it avoids radical proposals—like reforming failed government-sponsored enterprises Fannie Mae and Freddie Mac—that could backfire politically and rely on congressional action. In an election year where even must-pass legislation faces tough odds of passage, the administration is hoping Republicans in particular can be blamed for failure.
The timing of the announcement was politically opportune. It came during a primary week that puts Republican presidential candidates in front of voters in two of the states hardest hit by the housing market meltdown—Florida and Nevada.
GOP candidates have shied away from any new initiatives to boost the housing market, arguing that it is best to let the market resolve on its own. Mitt Romney, front-runner for the Republican nomination after his win in Tuesday’s Florida primary, has said the government should not get involved in the foreclosure process—a message unlikely to be welcomed in Nevada, where he next faces voters.
Obama’s greater emphasis on fixing housing follows long-building criticism from both allies and adversaries over his administration’s disappointing efforts to stabilize the market. Both Democrats and the consumer advocates who are part of his support base as well as the business community have urged the White House to take much more aggressive action to stem the collapse of home prices and the rising tide of foreclosures—both of which have made digging out of the recession so much more difficult.
Now, the administration can attempt to deflect some of the heat by pointing to a proposal, no matter that it might go nowhere and accomplish little.
The plan would allow millions of borrowers to refinance their mortgages into loans with lower interest rates. Those new loans would be backed by the Federal Housing Administration, which has been a target of Republicans who worry about the agency’s solvency and dramatic growth since the 2008 financial bust.
According to the administration, the plan would cost $5 billion to $10 billion and could save borrowers as much as $3,000 a year.
The White House proposed paying for the cornerstone piece of the program with a tax on the largest financial institutions—an almost sure loser on Capitol Hill. The Obama administration has advocated various renditions of a bank tax since 2010, but none have advanced in Congress, even when Democrats controlled both chambers.
Between relying on FHA and a bank tax, clearing such a proposal in Congress would amount to the toughest of uphill climbs.
Some easier-to-achieve parts of the plan call for establishing national mortgage-servicing standards, something that could be done by housing regulators without requiring congressional action. As part of a “homeowner bill of rights,” Obama also discussed an effort under way by the Consumer Financial Protection Bureau to simplify mortgage disclosures so borrowers can easily understand their loan terms before signing a loan.
Another piece of the administration’s plan is to convert foreclosed properties owned by Fannie Mae and Freddie Mac into affordable rental units, and the Federal Housing Finance Agency announced on Wednesday it was ready to start prequalifying investors for small pilot programs targeting areas hit hardest by the foreclosure crisis. The effort could help stop further house-price deterioration in select areas but appears to be modest and on a slow time line.
Yet underscoring the election feel of Wednesday’s announcement, the usual housing-policy experts and relevant congressional offices were not brought into the fold with advance briefings as they typically are ahead of major policy announcements. That has left many housing-policy stakeholders speculating privately that the announcement was related more to Obama’s reelection campaign than to his overarching housing-policy goals.
In his speech on Wednesday in Falls Church, Va., where he touted his administration’s latest efforts to make it easier for borrowers to refinance into cheaper loans, overhaul mortgage servicing, and convert foreclosed properties into affordable rental units, the president hit all the high notes about protecting the middle class and fostering fairness that his campaign aims to reinforce.
“Millions of families who did the right and responsible thing—who shopped for a home, secured a mortgage, and made their payments each month—were hurt badly by the irresponsible actions of others,” he said.
“This is a make-or-break moment for the middle class. And this housing crisis struck right at the heart of what it means to be middle class in America: our homes.... We need to do everything in our power to repair the damage and make responsible families whole,” Obama said.