Back to Work - Bill Clinton [49]
c) If neither option works for the homeowner, then foreclosure should be expedited, coupled with assistance in finding an affordable rental option.
d) Meanwhile, the government should incentivize banks, as holders and servicers of mortgages, along with Fannie Mae, Freddie Mac, the VA, and the Federal Housing Administration (FHA), to get their housing stock into rentable shape and to charge the lowest possible rates so that the houses can be filled more quickly and don’t deteriorate further. This is much better than allowing Fannie and Freddie to continue to dump thousands of foreclosed-on houses onto the market each month, further depressing housing prices and the value of occupied homes.
e) If we want to create even more jobs with this effort, the houses to be rented should be given energy audits and retrofits. Typically, utility savings of 20 percent or more can be achieved with just one day of retrofit work by knowledgeable contractors. Though the utility bills will go down, the renters would continue to pay the same rent until the cost of the retrofit is paid off, usually in twelve to eighteen months. Then the rent payment would be reduced to reflect the 20 percent reduction in the utility bill. Meanwhile, every $1 billion spent on home retrofits creates about eight thousand jobs. The banks could finance the retrofits at little or no risk because bonded contractors will guarantee the savings to get the work. Or the Treasury Department could finance them with money from the unspent TARP funds allocated to the mortgage problem. I believe the total is more than $40 billion. Like the banks, the government would get the money back plus interest.
So why aren’t we doing this already? A number of news articles I’ve read recently suggest that banks are reluctant to write down mortgages because they make more money on foreclosures. The bankers I’ve talked to about this say it isn’t so, because the costs of maintaining foreclosed property are greater than the foreclosure fees.
It seems to me there are three obstacles to rapid, comprehensive resolution of the problem.
First, the public entities that hold mortgages, the VA and the FHA, often don’t allow principal reduction, even when doing so would have a positive economic impact. The publicly created big mortgage holders, Fannie Mae and Freddie Mac, don’t either, even though they received more than $140 billion from the government to help them survive after they made large purchases of subprime mortgages from 2004 through 2007. One recent news article, based on Fannie Mae’s own records, claims Fannie spent $27,000 to foreclose on one home with a delinquency of only $3,000.
Why are they doing this?
When Freddie and Fannie got their bailouts, Congress put them under the supervision of the Federal Housing Finance Agency. Its interim director, Edward DeMarco, says his mission is to conserve Fannie’s and Freddie’s assets, not to restore the health of the housing market. Given a narrow interpretation of his legislative mandate, he may be right. He’s been defended by Sheila Bair, former director of the Federal Deposit Insurance Corporation, who did more than any other Bush administration official to warn of, and try to fend off, the crash, and has made constructive proposals to fix it. Still, the problem with DeMarco’s position is that in opposing writing down mortgages or refinancing them at lower interest rates, he may save Fannie Mae and Freddie Mac money today, but not in the long run, because until we resolve the underlying problem the value of housing stock will continue to decrease, making even more mortgages valued higher than homes. Something has to be done to change this.
Fannie Mae, Freddie Mac, the VA, and