Housing takes back seat to economy in State of the Union Address


President Barack Obama heavily laced his 2012 State of the Union Address with comments about solutions for the nation’s economic malaise, but he gave housing the short shrift.

Housing is, after all, a cornerstone of the American economy.

Shelter and its related costs account for 40 percent of the Consumer Price Index (CPI), an index of consumer expenditures, according to the U.S. Bureau of Labor Statistics, not to mention the jobs-creation aspect.

Obama’s comments about the economy should have been 40 percent housing.

When housing crumbled, the economy tumbled headlong into the Great Recession, the greatest recession since the Great Depression.

Few would disagree – even the president – until housing recovers the economy will remain in the tank.

“In 2008, the house of cards collapsed. We learned that mortgages had been sold to people who couldn’t afford or understand them. Banks had made huge bets and bonuses with other people’s money. Regulators had looked the other way, or didn’t have the authority to stop the bad behavior,” said the president, on Jan. 24, in his 2012 State of the Union Address.

“It was wrong. It was irresponsible. And it plunged our economy into a crisis that put millions out of work, saddled us with more debt, and left innocent, hardworking Americans holding the bag,” he added.

Obama addressed several issues related to housing market, two directly and a third related to a component of housing in the CPI: greater access to cheaper mortgages, protection from mortgage fraud and energy costs.

Cheaper mortgages

“I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low rates. No more red tape. No more runaround from the banks…give those banks that were rescued by taxpayers a chance to repay a deficit of trust,” Obama said to rousing applause.

Good luck with that.

Great if you can get it.

The Obama Administration recently removed some obstacles to the original Home Affordable Refinance Program (HARP) to allow more homeowners to refinance and benefit from low interest rates, but not every homeowner can benefit.

HARP is available only to those with loans sold to Fannie Mae or Freddie Mac on or before May 31, 2009 and have current loan-to-value (LTV) ratios above 80 percent, including homeowners who are “underwater” and owe more than their home is worth.

Recent enhancements include:

• Removing the previous 125 percent loan-to-value (LTV) ceiling on current mortgages backed by Fannie Mae and Freddie Mac. Before the enhancement, only homeowners holding mortgages with a maximum 125 percent LTV were eligible for a HARP refinance. A 125 percent LTV means your mortgage is 125 percent of the value of your home. Now, how far you are underwater won’t disqualify you.

• Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers.

• Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac.

• Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises.

• Extending the end date for HARP until Dec. 31, 2013.

According to early information about Obama’s State of the Union Address comments, new legislation will allow HARP to cover not only Freddie and Fannie mortgages, but those owned by private investors.

Unfortunately, even an Executive Order can’t deliver a shot at refinancing to “every responsible homeowner.”

That’s because the program is voluntary. Even if new legislation passes, chances are, not all private investors will bite. Some existing federal loan holders don’t participate. In both cases, they just aren’t that generous.

And given the current political climate, making such a program mandatory for private lenders is virtually impossible.

Obama may ask Congress to let the Federal Housing Administration (FHA) guarantee refinancings by underwater borrowers and have big banks pay a fee to cover the costs.

Again, political infighting will make passing such legislation tough.

Also, while there is no maximum LTV on eligibility for any existing Fannie or Freddie mortgage. There are other LTV requirements that won’t help “every responsible homeowner.”

There is no LTV ceiling on the new loan, provided the new loan is a fixed rate mortgage (FRM). If the new loan is an adjustable rate mortgage (ARM) the new loan can have no more than a 105 percent LTV.

And once any underwater mortgage is refinanced, unless the lender reduces the principal, the homeowner will remain under water.

Also only first mortgages and mortgages on primary residences remain eligible. Homeowners don’t get a break on second mortgages or mortgages on second homes.

Finally, homeowners are out of luck for HARP if they have even one late payment in the last six months or more than one late payment in the last 12 months.

It’s doubtful legislation with make it through the current Congress truly offering “every responsible homeowner” access to a refinancing deal.

Mortgage fraud

Obama also announced a special “Financial Crimes Unit” of federal prosecutors and state attorneys general to heighten existing investigations into financial activities blamed for the economic crisis, as well as activities that have continued since the economy tanked.

“We’ll also establish a Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud and protect people’s investments. Some financial firms violate major anti-fraud laws because there’s no real penalty for being a repeat offender. That’s bad for consumers, and it’s bad for the vast majority of bankers and financial service professionals who do the right thing,” Obama said.

The five largest U.S. mortgage lenders recently offered a $25 billion settlement proposal that could make it easier for some struggling homeowners to avoid foreclosure and have their mortgage balances reduced.

Also, 14 financial institutions are under federal orders to perform independent reviews of an estimated 4.5 million foreclosures.

In both cases, the settlements are part of state and federal probes into “robo-signing,” “dual tracking,” and other questionable procedures big banks used after the crash to assembly-line process foreclosures.

New investigations could have the same state and federal officials go after lending and securitization practices that led to the crash.

“…The rest of us are not bailing you out ever again. And if you’re a mortgage lender or a payday lender or a credit card company, the days of signing people up for products they can’t afford with confusing forms and deceptive practices – those days are over,” the president said.

Energy efficiency

In one other area that affects all residents of the home called Planet Earth, Obama also addressed the need to move away from fossil fuels and into the world of green energy.

“It’s time to end the taxpayer giveaways to an industry (oil) that rarely has been more profitable, and double-down on a clean energy industry that never has been more promising. Pass clean energy tax credits. Create these jobs,” Obama said.

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