The Broader Market

More than five years into what is arguably the worst foreclosure crisis in American history, millions of families are still at serious risk of losing their homes. Nearly one in four homeowners is “underwater,” meaning they owe more on their mortgage than their home is worth, and more than 7 million homes are still in the foreclosure pipeline, according to analysis from Morgan Stanley. In fact, some analysts predict we’re only halfway through the crisis.

The big question before lenders, investors, and policymakers today is how to avoid another wave of costly and economy-crushing foreclosures. There are several ways to lower an at-risk borrower’s monthly payments and increase the chance of repayment: refinancing to today’s historically low interest rates, extending the loan’s terms, modifying the interest rate, deferring payments, or lowering the amount the borrower actually owes on the loan—so-called “principal reduction.” In most cases the lender or mortgage investor responsible for the loan considers all of these options when deciding which intervention is best for the specific borrower.

That is, unless the loan is owned or guaranteed by Fannie Mae or Freddie Mac, the country’s two biggest mortgage finance companies. Fannie and Freddie have yet to embrace one option—principal reduction—as a viable foreclosure mitigation tool.

Mar 14

The liberal think tank the Center for American Progress has proposed a plan to promote a new source of financing for troubled state housing finance agencies — the House America Bond.

A HAB would be a taxable, direct-pay bond, modeled after the Build America Bond program, which was created as part of the American Recovery and Reinvestment Act of 2009….

Jordan Eizenga, a member of the economic policy team at CAP and the author of the proposal, said issuers would not need a 35% subsidy rate, as that rate may have been too generous.

Mar 01

State housing finance agencies play an important role in the provision of affordable housing. As state-chartered institutions, these agencies emerged in the 1960s in response to the failure of private lenders and developers to finance affordable low- and moderate-income housing. With a detailed understanding of the needs of local housing markets, housing finance agencies are uniquely positioned to responsibly underwrite mortgages—often with down payment assistance—for low-income, first-time homebuyers and to finance the development of multifamily affordable rental housing.

Since their creation housing finance agencies have financed the construction of nearly 1 million affordable rental units and approximately 4 million affordable mortgages for low- and moderate-income households. Yet over the past several years, many of them have struggled to raise funds from their traditional source of capital—the tax-exempt bond market—at affordable rates and long maturities to finance their mortgage programs. This has made it more difficult for them to provide affordable mortgages for low- and moderate-income households where the lack of mortgage credit is greatest.

As this issue brief demonstrates, these funding challenges must be resolved if housing finance agencies are to continue to play an effective and central role in supporting their state and local housing markets. In particular, this brief argues for a promising new source of financing for housing finance agencies—what the Center for American Progress would like to call the “House America bond,” modeled after the successful Build America Bond program that was part of the American Recovery and Reinvestment Act of 2009.

Feb 17

The recent housing downturn revealed how homeowners are systematically disadvantaged by the current system of mortgage finance and are in need of additional rights to be protected from abuses in the servicing of mortgages. This is why President Barack Obama’s call last month for a “homeowner bill of rights” is so important.

For more, see here.

Feb 16

Manufacturing remains an integral part of our economy. Manufacturing companies provide well-paying, middle-income jobs. U.S. manufacturing wages are, on average, 19.3 percent higher than the private-sector average even though the sector employs an above-average share of those without a college education. Manufacturing also drives innovation. Manufacturing companies account for more than half of all public and private research and development in the United States, the benefits of which spill over into other sectors.

While U.S. manufacturing today suffers from lower employment levels and slower growth in output than in the past, the sector is by no means a lost cause. Much can be done to bolster its competitiveness. For one, the federal government can help create jobs and increase output by improving the performance of manufacturers by increasing their access to capital.

Feb 02

The new pilot program by housing finance giant Fannie Mae to convert foreclosed homes into rentals is a promising first step toward revitalizing neighborhoods and stabilizing local housing markets—providing homeowners and renters alike with much-needed help. That said, details are scarce about the new program, which President Barack Obama unveiled yesterday at a speech in Falls Church, Virginia. But so far we are encouraged by the care Fannie Mae is taking in screening potential participants given the impact this program will have in affected communities. (For more, click on the title above)

Jan 31

Talk about critical timing. President Barack Obama’s newly formed mortgage crisis working group within the Department of Justice is charged with investigating fraud in the home mortgage market that led to the housing and financial crises and the Great Recession. The new group will begin its work just as state attorneys general from around the country are reportedly about to finalize negotiations with the nation’s leading mortgage servicers over a settlement for misconduct in the wake of the housing market collapse.