Wednesday, April 09, 2008

Housing in campaigns 

The housing issue is rearing its head in the presidential and other campaigns. MPR reports on the criticism of the Senate bill (supported by both Minnesota senators.)
The Senate bill is likely to include several provisions aimed at shoring up the weak housing market. Among them are tax credits for buyers of foreclosed homes, along with billions of dollars to refinance problem mortgages and for cities to buy foreclosed properties.

But the bill also provides billions of dollars in tax breaks for businesses. Critics, including Democratic House Speaker Nancy Pelosi, say those tax breaks come at the expense of directly helping homeowners who are in trouble.

Last night we had another blogger conference call with Senator Norm Coleman, and I asked about this criticism. His response was that the tax breaks do help homeowners and that this distinction between direct and indirect help is a false one.

He also points out the issue I raised about that criticism being in conflict with the criticism in the story of there not being enough money for mortgage counseling. As Michelle Malkin has described, the mortgage counselors are often affiliated with left-wing groups like ACORN and La Raza. Coleman defended the idea of counseling; I did not bring up these groups as part of my question, wondering if he was aware of the issue. He made no mention of them. His support of the housing bill pointed to the residential construction industry, which suffered a 14% decline in employment in 2007.

I find no discussion of the mortgage issue on Al Franken's website.

Meanwhile, the Bush administration appears ready to double-down on last summer's FHA insurance expansion.
Under the expanded program, lenders could get FHA insurance for problem loans in exchange for "voluntarily writing down the outstanding mortgage principal," according to the testimony. That would entail the government being responsible for an increasing number of risky loans.

Mr. Montgomery emphasizes in the testimony that "while considering any changes to FHA, we must ensure that the financial solvency of the [FHA] must not be compromised." FHA is a division of the U.S. Department of Housing and Urban Development, which didn't return calls seeking comment.

Under the original program created last year, known as FHASecure, homeowners with high-interest, adjustable-rate mortgages currently can refinance into an FHA-insured mortgage and lower their monthly payments. To date, the administration says it's served 145,000 homeowners in need, and projections show that it will likely reach more than 400,000 by year's end. A temporary expansion of the program would be expected to add significantly to that total.
The plan differs significantly from the Durbin plan, which Coleman criticized for its cram-down provisions in "turning mortgages into junk bonds." (Ed Glaeser writes about how to not use the bankruptcy courts to solve the mortgage crisis.) In the Bush proposal, the lenders are being told if you want the FHA insurance, you have to work out a haircut of the principal, reducing the debt of borrowers. Coleman had not seen the plan yet and had no comment.

States are not missing the opportunity to posture for the voters or the media. In Minnesota, SF 3396, the Subprime Foreclosure Deferment Act continues to work through both houses of the legislature.

"We have a crisis in mortgage foreclosures, and this seemed like the boldest way that we could respond to the problem," said state Sen. Ellen Anderson, a sponsor of a Minnesota bill that would let some borrowers with subprime loans or negative amortization mortgages defer paying a portion of the amount owed, without being considered delinquent. A negative amortization mortgage is one in which the loan balance can grow even if the borrower keeps up with the payments.

I'm troubled by the implication that boldness should be the criterion by which we choose how to resolve debt issues. Seems like boldness got us here.
The Minnesota legislation would require a mortgage lender attempting to foreclose on a home to honor a borrower's request for a 12-month deferment. During that time, the borrower would have to continue paying either the monthly payment due on the loan at the time it was made, or 65% of the monthly payment at the time of default, whichever was less, though the borrower would eventually have to make up the deferred payments. The bill has passed committees in the Minnesota House and Senate, but the governor has said he probably will veto it. [Last] Wednesday, the bill's sponsors sent to the governor a letter suggesting that lawmakers work with him to craft a compromise.

The legislation faces strong industry opposition. "It would significantly erode the confidence lenders and borrowers have about the stability of contracts in Minnesota," said Tom Deutsch, deputy executive director of the American Securitization Forum, an industry group.
Contrary to some opinions, the bill does impose some real costs. The terms of the loan are changed. Who would lend again in a place where bad times means the power of government is shifted onto the depositors of a bank, its employees, and the taxpayers?

One thing is for sure: Housing draws voters' attention, which leads it to draw politicians' attention. The latter should worry you.

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