Obama Re-Election Threat Spurs Search for New Ideas on Housing
Housing Obama
A realtor's sign stands in front of a home in Miami. Many of the thousands of abandoned and devalued houses resulting from the subprime lending crisis are concentrated in states crucial to President Obama’s reelection hopes. Photo: Joe Raedle/Getty Images
A realtor's sign stands in front of a home in Miami. Many of the thousands of abandoned and devalued houses resulting from the subprime lending crisis are concentrated in states crucial to President Obama’s reelection hopes. Photo: Joe Raedle/Getty Images
President Barack Obama and his aides are increasingly worried that the ongoing housing crisis is undermining an economic recovery and could become an obstacle to his re-election.
The challenge is particularly acute in a handful of states still reeling from foreclosures and declining property values. Voters in those swing states -- including Florida, Ohio and Nevada -- could decide whether Obama is re-elected.
Administration officials say they’re focusing renewed energy on housing, drumming up new ideas and tweaking existing programs to maximize their effect.
“We understand deeply how important the housing market is to the economy and what an impact it has on struggling homeowners,” said James Parrott, a senior adviser at the White House’s National Economic Council. “We’re thinking every day about steps we can take.”
Almost three years into his term, Obama has failed to halt the slide in home prices and the rising tide of foreclosures that began in 2007. Home prices fell by 5.2 percent in July from a year earlier, according to CoreLogic Inc. (CLGX), a data provider in Santa Ana, Calif., and last year brought a record 2.9 million foreclosure filings.
Obama last addressed the nation’s housing woes in July, acknowledging that his programs hadn’t lived up to expectations.
“We’re going back to the drawing board, talking to banks, try to put some pressure on them to work with people who have mortgages to see if we can make further adjustments, modify loans more quickly, and also see if there may be circumstances where reducing principal is appropriate,” Obama said from the White House in an online town hall sponsored by Twitter Inc.
‘Still Waiting’
Housing advocates are eager to see what comes of those efforts.
“We’re still waiting,” said Janis Bowdler, director of the wealth-building policy project at the National Council of La Raza, an advocacy group that focuses on issues affecting Latinos. “Now what?”
Housing, the nation’s largest asset class, has aided every U.S. recovery but one, according to the Bureau of Economic Analysis. Even with record-low interest rates, its five-year drag on growth continues.
At the end of last year, more than 11 million households had more debt on their homes than the properties were worth, according to CoreLogic. Another 2.5 million had less than 5 percent equity in their houses. Those underwater borrowers can’t move for a new job or better pay because they often can’t sell.
“Housing is ground zero for the economy’s problems, high unemployment and lost jobs,” said Mark Zandi, chief economist at Moody’s Analytics Inc.
Underwater borrowers and the millions more who have lost homes to repossession are clustered in states that will be up for grabs in 2012. For them, Obama’s disappointing rescue efforts -- including his signature Home Affordable Modification Program, or HAMP -- could weigh heavily.
“They have a big problem,” Bowdler said. “All their eggs went into the HAMP basket and HAMP didn’t cut it.”
When Obama presents his new jobs agenda in a speech to Congress on Sept. 8, he’d be well-served to include a message for Americans who have lost their homes or are struggling to keep them, said Wade Henderson, president of the Leadership Conference on Civil and Human Rights.
American Dream
“Housing, more than anything, reflects the belief in the American dream,” Henderson said. “Homes lost to foreclosure, by what appear to be illegitimate means, have done more to erode confidence in that dream than anything.”
The administration has spent billions of dollars trying to restore that confidence. A package of programs introduced in February 2009 was aimed at freeing borrowers from risky loans, clearing high-risk subprime mortgages out of the system and preventing foreclosures.
Those loan-modification efforts were overwhelmed by design flaws, lack of cooperation from banks and high demand from homeowners, according to government officials, lawmakers and watchdog groups. As of June, HAMP reported only 657,044 permanent modifications -- a fraction of the millions it was designed to reach.
The Treasury Department’s Hardest-Hit Fund, established a year later, allocated nearly $8 billion to prevent foreclosures in states with plunging home values and concentrated unemployment. Most of that money has yet to be spent as states grapple with bureaucratic challenges and the complexities of the mortgage finance system.
Smaller Steps
The administration continues to take smaller steps. In July, the Department of Housing and Urban Development extended a mortgage-payment break for jobless homeowners from three to 12 months for loans backed by the Federal Housing Administration.
Last month, HUD and the Treasury Department joined the Federal Housing Finance Agency to appeal for ideas for coping with the nearly quarter-million repossessed homes that the U.S. government owns.
And HUD and the Justice Department are intent on reaching a legal settlement with banks and mortgage companies over botched foreclosures. Any deal, which would be reached in coordination with state attorneys general, could direct as much as $20 billion to borrowers.
Still, the thousands of abandoned and devalued houses scattered throughout the country remain a visible reminder of the Wall Street excesses that fueled the subprime mortgage crisis and helped drive the nation into recession.
‘Afterthought’
“There’s a perception that housing has been a bit of an afterthought” for the president, said Matt McDonald, an adviser to Republican Senator John McCain’s 2008 presidential campaign. “If you have a house on your block that has weeds overrunning it and has been abandoned, that is a big deal in terms of people’s perception about how the economy is doing.”
The biggest battleground state is Florida, which delivers 29 of the 270 electoral votes needed to win a presidential election. Obama took the state in 2008 with less than 51 percent of the vote.
One in six Florida households were at least three months behind on their mortgage payments as of June, a higher percentage than in any other state, according to CoreLogic. Florida voters have sided with the presidential winner in four of the last five elections.
Ohio, another bellwether, has picked every presidential winner since 1964. Obama won the state by 5 percentage points in 2008. Home values there fell again last year, according to CoreLogic, and new foreclosures are on the rise.
Toss-Up States
In 2008, Obama easily won Nevada, Michigan and Pennsylvania with double-digit margins. Those once reliably Democratic states, now littered with foreclosures, are shaping up as tossups.
Combined, homeowners in Florida, Ohio, Nevada, Michigan and Pennsylvania received nearly a third of the nation’s 2.9 million foreclosure notices last year. They hold 89 of the 270 electoral votes needed to win the election.
Despite keen interest in doing more to address the housing crisis, Obama has limited options. A divided Congress intent on budget cutting has no appetite for another housing bailout.
Fannie Mae and Freddie Mac, the companies that own or guarantee more than half of all U.S. loans, also present an obstacle even though they are government controlled. The companies’ conservator and chief regulator, Edward J. DeMarco, has shown little or no interest in putting what are now taxpayer assets at risk. That poses a particular problem for any effort to encourage more refinancings of government-backed loans.
“It is important for the White House to proactively approach these issues and make them a negative for the Republicans,” said Chris LeHane, a political strategist for Al Gore’s presidential campaign in 2000. “Are you on the side of a hard-working Nevada family and against Wall Street banks, or standing with the Wall Street banks?”
To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.
To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.
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