Obama stated in this year’s State of Union address. “But I intend to fight obstruction with action, and I will oppose any effort to return to the very same policies that brought on this economic crisis in the first place.”
The housing markets continue to languish. Some suggest that housing has hit a bottom and will likely bounce along at that level for a number of years.
Others like Professor Robert Shiller, Phd., noted housing economist and co-creator of the Case Shiller S & P housing index, suggest that housing could fall another 5% – 10% has now suggested housing may not recover for a generation.
The primary real reason behind the inability of the housing market to rebound is the ineffectual housing financing market. Mortgage originations have fallen to a 12 year low, despite record low mortgage rates. The housing finance markets are dominated by three players — Fannie Mae, Freddie Mac and the FHA. These government entities now control over 85% of the residential financing market and have presided over a decline in mortgage financing from $2.4 T in new loan originations in 2007 to $1.1 T in 2011 and trending lower in 2012. Fannie and Freddie are undercapitalized and have already cost the American taxpayer $160B+. The FHA is similarly under-capitalized but apparently is more important to this Administration as a conduit for funding payroll tax cuts rather than as an instrument to help stabilize and reform an otherwise failing mortgage finance system.
Some 3.5 years into this Administration, Housing and Urban Development Secretary Donovan states, “The housing recovery is moving along; we’re dealing with shadow inventory and REO. But the third issue is credit. I am very concerned that some of the proposals out there would restrict credit going forward…This isn’t about what the mortgage market looks like today. We have to ensure that the next mortgage crisis doesn’t happen.”
He went on to say “the Obama administration doesn’t plan to introduce Fannie Mae or Freddie Mac reform “any time soon.”
Despite Donovan’s expressed concern over credit and the potential for re-emergence of the residential mortgage crisis, government action is apparently not urgent or imminent.
CNBC’s Housing Commentator Diane Olick suggests that, “Without a strong recovery in the job market, which does not appear to be the case, and a big loosening in credit, which also does not appear to be the case, regular demand for home purchases will remain soft.”
Donovan’s self-professed concern over housing credit together with the concern expressed by other experts doesn’t seem to have swayed the Obama Administration to act with any urgency over the past three years, nor does there seem to be a commitment to do so anytime in the immediate future. With the housing finance system shrinking and constraining housing recovery, where is the Administration’s commitment to action and moving forward with reform in conformance with their own Treasury Department’s 2011 White Paper recommendations. And in rare accord with the Administrations recommendations, the Republican Congress has attempted to move forward with privatization reforms outlined in those White Papers over the past year, proposing to make the residential financial market less dependent upon the federal government by passing of a number of bills. But rather than support Republican initiatives, the Administration in concert with the Senate Democrats have obstructed Republican efforts.
Without reform in the Housing Finance Industry and Capital Markets, there is little chance of a strong housing recovery. This Administration has had 3.5 years to move forward with reform, yet has preferred inaction to action and reliance upon failed past institutions/policies rather than new market initiatives necessary to recovery of the housing market. Obama suggests his Administration is moving forward, but it seems his housing initiatives are wed to a failed past.
