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Edward DeMarco, the acting director of the Federal Housing Finance Agency, on Tuesday defied both the Obama administration and widespread expectations that he would cave to a torrent of political pressure and allow Fannie Mae and Freddie Mac to offer principal reductions to troubled borrowers.
July 31 -
Federal Reserve Board Gov. Elizabeth Duke outlined a number of factors — such as the mortgage servicer settlement, the huge number of underwater borrowers and the failure to reform the GSEs — that are working to limit mortgage credit to healthy borrowers.
May 15 -
A recent paper released by Fed economists has sparked a firestorm of criticism, but it could be just what policymakers need to jumpstart a much ailing housing market.
January 20
WASHINGTON — Housing and Urban Development Secretary Shaun Donovan defended efforts by the Obama administration to help the housing market recover, arguing it faced significant hurdles over the past four years.
"Despite the fact that our progress has not been made in a straight line, it's clear that housing is stronger than most expected it to be at the time when the president took office," Donovan said in a speech at a housing conference hosted by the American Action Forum. "There were challenges along the way. But today housing is in a significantly better position, by this measure, home prices, than most economists and market analysts expected at that time."
Outlining key barriers to the recovery, Donovan pointed to poor market conditions when Obama took office, including a stagnant unemployment rate, borrowers with negative equity, and few tools by the government to incite good behavior by servicers.
"As we speak, our housing market is showing signs of recovery," he said.
Since Obama took office, the number of families succumbing to foreclosure has been halved; home sales have been the strongest since the crisis began; and housing pricing are crawling up since the first time since September 2010, he said.
That was a sharp contrast to the environment in 2009, Donovan said.
The month the president was sworn in more than 800,000 jobs had been lost, foreclosures were at record levels, and house prices were in a free fall.
Donovan said that at the time, the administration's focus was on the availability of credit, especially with the Federal Reserve Board taking actions to keep interest rates low.
"Often missed in this discussion is the fact that low interest rates are only meaningful to housing if mortgage credit is available at those rates," said Donovan.
It was also critical that the administration help support Fannie Mae and Freddie Mac, which at that time had already been seized by the government. The administration also extended a tax credit to first-time homebuyers to help boost demand and attempted to help distressed homeowners and neighborhoods, Donovan said.
The administration created the Home Affordable Modification Program, which did not live up to initial expectations but succeeded in helping roughly 1 million homeowners.
Donovan said that while the latest housing scorecard shows that 3 million families went through a foreclosure since the program was created, another 5.6 million received the help necessary to lower their monthly payments.
But Hamp was hardly a cure-all. Donovan noted that there were questions about the capacity of servicers to implement the program and complex and conflicting incentives. The government, meanwhile, lacked an effective way to alter servicers' behavior, he said.
"As a result of these barriers, which were often interrelated, what appeared to be the beginnings of a broader recovery in our economy and housing market stalled — a fact that became especially clear with the expiration of the homebuyer tax credit in mid-2010," said Donovan.
The administration made further changes by extending the forbearance period up to 12 months to accommodate the number of out-of-work Americans. It simplified Hamp and opened it up to make more borrowers eligible as well as make a series of changes to the Home Affordable Refinance Program to help more families who were deeply underwater.
"Since that time, we've seen a 160 percent increase in total volume," said Donovan of the changes made to the HARP program. "More than 1 million families have applied and more than a half million refinances have closed."
A historic $25 billion settlement has also helped provide relief to families with banks required to write down part of borrower's mortgages.
"The settlement gave us a tool to require principal reduction at a time when Congress would not," said Donovan.
It also allowed the government to set mortgage servicing standards that are now in effect, Donovan added.
