One More Futile Attempt To “Stabilize” Housing

The Obama administration may have hit a new low in their quest to “stabilize” the housing market. Taking a page out of a book that even the subprime boys never got to they’re proposing to lend up to $50,000 to homeowners that have suffered a loss of income. Specifically, to homeowners that currently can’t pay their mortgages.

Here, from Bloomberg, is a bit more:

The Obama administration will offer $1 billion in zero-interest loans to help homeowners who’ve lost income avoid foreclosure as part of $3 billion in additional aid targeting economically distressed areas.

The Department of Housing and Urban Development plans to make loans of as much as $50,000 for borrowers “in hard hit local areas” to make mortgage, tax and insurance payments for as long as two years, according to a statement released today. The Treasury Department will also provide as much as $2 billion in aid under an existing program for 17 states and the District of Columbia, according to the statement.

There isn’t any discussion that I’ve found with regard to repayment, though I think it is contemplated, at least for now. The Bloomberg article mentions that all recipients must have a reasonable likelihood of being able to resume payment of their mortgages within two years. I take that to mean that anyone who signs up for this program has to aver that they expect the future to be better than the putrid present. Given that bar, I expect that this money will go quickly.

Two bloggers got the proper take on this one.

Yves Smith said:

But how realistic is enough improvement in the job market to save people’s houses at their current mortgage level? The pattern for a lot of people who lose jobs is that their next job is at a lower rate of pay. And note a FURTHER dubious element: this bill targets “economically distressed areas.” Ahem, many of these areas are not coming back. Why are we encouraging people to stay there, when in many cases, better paying (or at least some) work is more likely to be in other communities? It would seem more productive to offer unemployed workers moving grants and maybe loans to help pay rent deposits in new locations (which in many states pay interest anyhow, but putting up a chunk of dough on top of moving costs is a big barrier when you are already out of work and in all likelihood sweating every expenditure).

So a LOT of conditions would have to fall into place for people against the wall to be salvaged by a two year loan. It’s unlikely to work for the vast majority. So the result is they STILL lose the house, and when they are unable to repay the HUD loan, they owe a big tax bill to the IRS.

And Diana Olick opined:

And that makes me, and several of the reporters on the conference call today about these programs, ask, why do we need this if we have the government refinance program, the government modification program as well as other government additions to these programs starting this fall that target unemployed borrowers?

The answer was a bit of a dance about how the states say they need this.

I just worry, once again, that government, which while trying to do its best to save the housing market, is just prolonging its agony, kicking the can down the road and making permanent renters out of all too many Americans.

Smith’s point about relocation is one of more than passing import. There have been several studies since the onset of the recession that suggest labor mobility, long one of the bulwarks of the American economy, has declined significantly. People just aren’t moving where the jobs are as much as they have in the past.

Put a lot of it down to the efforts of the real estate industry aided and abetted by the government to suck people into homeownership. Lots of folks who knew better, who knew from experience that life has a way of knocking you down, ignored this bit of acquired wisdom and fell into the trap of owning a home. They rationalized their way into their quandary by assuming they could sell if that ever became necessary and, of course, sell at a profit. They bought the snake oil completely. Now isn’t the time to be selling them a bit more by encouraging them to go further into debt.

I’m disinclined to lay all of the blame for this solely on the Obama administration or the Democrats for that matter. Plenty of Republicans have shown no spine when it comes to facing up to the reality that we have to let the housing market play itself out sooner or later. Prices may fall again, more people, lots more, will lose their homes and it will take years for the surplus to be absorbed. It will happen and denying that fact doesn’t change the dynamic, but it does keep a lot of people from facing hard choices they will have to make sooner or later.

To a large extent housing policy led us into this morass and housing policy continues to dig an ever deeper hole. Less policy might be the kindest and best course of action now.