The Broader Market

by Janneke Ratcliffe, Alon Cohen and Jordan Eizenga

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.

For more, see here.

by Alon Cohen, Jordan Eizenga, Bracken Hendricks, John Griffith, and Adam James

Half a million houses, many of them vacant and deteriorating, are languishing in a bloated U.S. real estate market, threatening to turn some cities into ghost towns, undermining the stability of working families, and proving to be an anchor on a shaky economy. Many of these vacant homes, nearly a quarter-million, are controlled by the federal government.

If the situation wasn’t already bleak enough, there are also more than a million additional American homes saddled with delinquent mortgages that are in the process of foreclosure. Chances are many of these homes will also end up as the property of the federal government. The only way to lower the inventory of decaying homes is to find a use for the ones we have before new ones swell the pool. Without assistance, the current “overhang” of foreclosed homes is expected to take four years to work back into the market.

The good news is the Obama administration and independent federal regulators are formulating plans to sell government-controlled foreclosed properties to investors who would bring them onto the rental market. (For more, see here).

by Camille Busette and Jordan Eizenga

Homeownership has long helped low- and moderate-income families build wealth that allows them to start businesses, educate their children, and retire with dignity. As a result of the recent housing and financial crises, American families will not have the same opportunity to build wealth through homeownership anytime soon. While sustainable homeownership remains an important goal, policymakers should explore other avenues to help low- and moderate-income families build household wealth. If we want to put these families on the path to homeownership, then we have to develop a comprehensive set of national policies that provide opportunities for and incentivize savings.

Unfortunately, the existing government incentives to save, invest, and build wealth are poorly advertised to the households that could use them the most. (For the rest of the issue brief, see here.)

by Peter Swire and Jordan Eizenga

The current structure of the mortgage-servicing industry is such that servicers are responsible to investors and “owe no duty at all to consider the needs and interests of consumers.” That is, the clients of mortgage-servicing companies are investors in mortgage-backed securities for whom the servicers collect monthly mortgage payments from homeowners and, as a result, servicers have no fiduciary responsibility to protect consumers from improper acts and omissions by mortgage servicers.

For the rest of the article, see here.

by Sarah Rosen Wartell and Jordan Eizenga

The changes to the Obama administration’s Home Affordable Refinance Program announced last week by Fannie Mae and Freddie Mac are welcome, but more can be done to expand access to the program and allow additional struggling homeowners to refinance their mortgage at today’s historically low interest rates.

In October the two taxpayer-backed mortgage finance giants, Fannie Mae and Freddie Mac, in conjunction with the Federal Housing Finance Agency, released broad guidelines for how to increase mortgage refinancings through the Home Affordable Refinancing Program, or HARP, for homeowners who are “underwater” on their mortgages, owing more than the value of their homes. HARP, launched in early 2009, did not have the effect it was expected to as too few borrowers refinanced through the program. The proposed changes unveiled in October were designed to overcome this lack of take-up by making the program more attractive to both borrowers and lenders.

For more, see here.

by Jordan Eizenga

Our still-ailing housing markets need all the first-time homebuyers and affordable rental housing investors we can find. The New Issue Bond Program, which the Department of the Treasury launched in 2009 to help state and local housing finance agencies continue financing housing for working families during the housing crisis, is set to expire at the end of 2011. The program’s imminent expiration threatens access to affordable rental housing and homeownership for many of those hardest hit by the housing crisis.

Fortunately, Treasury has the authority to extend the program beyond its current deadline. With half of all American renters devoting more than a third of their income to housing alone, and with private lenders writing off struggling communities and households that the housing finance agencies are uniquely able to serve, Treasury should extend the existing authority of the New Issue Bond Program so that it remains available through at least the end of 2012.[1]

For more of the article, see here.

by Sarah Rosen Wartell, David Min, and Jordan Eizenga

Our nation’s slowing economic recovery prompted policymakers to consider ways to shore up consumer demand and get our economy moving again. One central focus of these efforts was to find ways to improve the weak housing markets, where hundreds of thousands of foreclosed homes are keeping home values down and depressing household wealth, thus complicating efforts to generate demand and create jobs.

The Obama administration already had in place an important program that had the potential to strengthen the housing market, stimulate the economy, and increase employment. To combat the foreclosure crisis, the administration created the Home Affordable Refinance Program, or HARP for short, shortly after President Barack Obama took office.