Congress should act on mortgage reform

August 8, 2013 

Times are good in the housing game. Sort of. In the Triangle and elsewhere, home values and home sales are up. And foreclosures, President Obama has been telling people around the country, are down. There have been more promising jobs figures as well. All of those factors should add up to more Americans in their own homes.

Now Congress, and specifically the House – which is too often driven by no-government-is-good-government tea partyers – must build on rather than stymie the economy’s growing momentum.

That means taking up the issue of revamping the Freddie Mac and Fannie Mae mortgage giants to make sure they’re never again at the center of a financial meltdown.

In 2008, the two were overburdened with mortgage-backed securities, created with bundled mortgages from banks. Those bonds attracted investors because they knew the government would stand behind them.

When many of the loans supporting the bonds proved shaky, Fannie and Freddie were exposed to big losses and had to be seized and bailed out by the government at a cost of nearly $200 billion in taxpayer funds. (They remain in receivership.) It was all a consequence of the mortgage/lending industries’ reckless abandonment of proper lending practices.

Reins on Fannie, Freddie

Now Congress is looking at limiting the role of Fannie and Freddie in providing safety nets for the mortgage industry, and Obama, too, believes it’s time for the private sector to assume more of the risk. That shouldn’t mean less lending, he said, but finding smart ways to lend more now that more people are able to buy.

Obama wants banks to come up with more creative ways to finance and refinance, particularly with regard to getting people out from under loans that are greater than the value of their homes. Banks don’t like to hear that, of course, because what they see in discussions of reducing principal owed, or cutting payments and improving terms, is less profit. But advocates of such changes ask the question: Would you rather be recovering something or own houses you cannot sell?

Another theme the president is hitting hard is the need for more affordable housing and more reasonable rents.

Indeed, many people who might be able to afford their own homes can’t find many priced in their range. Or, if they live in a medium-sized city such as Raleigh, the only homes they can afford are far outside the city’s core, increasing the expense of transportation.

Creative development

We see this problem everywhere in the Triangle. Developers are reluctant to put affordable housing in neighborhoods where there are high-end homes. They’re not crazy about putting rental units in the mix, either. (The former Halifax Court in Raleigh is a notable exception.)

The developers have to make money, so they can’t be blamed for caution. But local governments can both encourage creativity and lower any risks.

What the president seems to be saying, in his almost evangelical push on housing, is that it would be a shame to let hesitation caused by what ought to be minor political differences prevent potential homeowners from catching the wave of economic recovery.

Certainly neither the government nor the mortgage industry wants to repeat the mistakes of the past in which too many lenders made unrealistic deals with homebuyers, providing them escalating mortgages that they couldn’t afford (and that some lenders knew they couldn’t afford).

The economic recovery is not going to continue to build the momentum it seems to be developing if people at all levels of the economy are not able to participate.

The building of a strong economic foundation begins at the bottom. The House, sadly, hasn’t shown much interest in helping the poor and the middle class, but those groups are the bricks and mortar of that foundation. Investment in helping them prosper will bring dividends to all levels of the economy.

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