How bad was it?
Foreclosures--We must remember as we evaluate the current housing market in the U.S. just how bad it was a few short years ago. According to RealtyTrac foreclosures filings the U.S. averaged 330,000 per month from the time President Obama took office until the end of his 2nd year. Yet the peak in foreclosure activity was reached in March of 2010, just 14 months after President Obama’s inauguration. From November of 2010 through today average monthly foreclosures filings have declined to 226,000 per month, an improvement of over 1 million foreclosures on an annualized basis.
Home values--A similar though slower improvement could be seen in U.S. housing values over that same period of time. According to the National Association of Realtors (NAR), the average U.S. home has lost approximately 33% of its value since the peak in 2006 (The S&P/Case-Shiller Home Price Index shows an average decline of 35% since the market peaked). While this is a big number, I believe that it could have been far worse. According to the NAR, housing values increased on average 127% between 1997 and 2006, with much of the growth fueled by easy credit and lax underwriting in order to supply a voracious appetite for mortgage-backed securities from domestic and international investors.
A review of the data tracked by CoreLogic indicates that rate of decline in home prices began to improve in January of 2009, the month that president Obama assumed the presidency and, with the exception of a modest “double-dip” period in 2010, when the rate of decline increased slightly, the improvement has been relatively steady. CoreLogic’s most recent Home Price Index indicates that not only has the average price decline been arrested, but average sales prices have actually increased for three consecutive months.
The Obama housing policy in a word: Forestall
It is reasonable to call the Obama housing policy “forestalling disaster”. From my perspective the president has led an effort in all three branches of government to forestall further damage and give the market time to work to repair the wounds inflicted by the housing crash. What have the ingredients of the policy been?
1. Early presidential response: Even before President Obama took the oath of office he announced his intention of using unspent funds from the Troubled Asset Relief Program (TARP) implemented by his predecessor to initiate two programs to assist mortgage borrowers at risk of foreclosure: HAMP-Home Affordable Modification Program and HARP-Home Affordable Refinance Program. This early response signaled the intention of the administration to take action to forestall the pace of foreclosures, yet did not fundamentally alter the market. Despite less than forecasted results, the administration has continued to improve the programs (HARP in particular).
2. Early Congressional response: With full approval of the White House, Congress immediately upon its new session in 2009 took up the issue of comprehensive housing market reform which resulted in the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July of 2010. The Dodd-Frank legislation helped to stabilize the banking sector and has improved consumer protections to date. While it may result in fundamental changes to the housing finance system in the U.S. going forward, its approach to empower new regulatory bodies without specifying the approach they should take will enable changes to be made over time in a non-crisis environment. The forestalling effects of this incremental approach are significant.
3. Legal action: While not arising directly from the Administration, the dramatic forestalling effects of the “robo-signing” scandal were greatly aided by a Presidential veto of a bill in 2010 designed to facilitate foreclosures by banks, and by a nationwide settlement reached in February of 2012 between lenders, the U.S. Department of Justice and 49 States’ Attorneys General. While many, including President Obama were not satisfied with the settlement, it was actually the delay in reaching it that provided the greatest benefit.
Although I disagree with many of the policies of the Obama Administration, I do believe that the combined forestalling effects of the administrative, legislative, and judicial actions of the Obama Administration has enabled the economy to improve somewhat, for interest rates to improve dramatically, and for lenders to embrace alternatives to foreclosure including short-sales, deeds-in-lieu of foreclosure, and various forms of loan modifications. All of these have slowed the rate of foreclosures and the decline of home prices which I contend would have been much worse without them. While far more work must be done to preserve the role that housing plays in our national economy, I believe President Obama can claim a victory in the housing war to date.
Walsh is the president of Total Mortgage Services, an expanding mortgage banker.