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Housing fix remains elusive
A Tuesday hearing devoted to the ailing housing market offered plenty of skepticism and criticism, but little in the way of progress towards an overhaul of the current housing finance system.
Lawmakers tossed barbs towards regulators and each other at a Senate Banking Committee hearing devoted to that market, which is widely seen as a major drag on the economic recovery. While there was general agreement that something needs to be done on housing, lawmakers from both parties were engaged in a tug-of-war over the proper course. And with the 2012 campaign looming over Congress, expectations are not high for a comprehensive plan this year.
Sen. Robert Menendez (D-N.J.) pointed out as many as 20 percent of mortgages in the private sector have had their principal reduced, arguing that the FHFA should allow similar efforts in a bid to help struggling homeowners and reduce foreclosures.
For his part, DeMarco defended his oversight of Fannie and Freddie, touting efforts to help homeowners while meeting the FHFA's stated mission of conserving the assets of the mortgage giants.
"In contrast to how they are sometimes portrayed, the enterprises are playing a leading role in providing assistance to homeowners and seeking to avoid foreclosures," he said.
Republicans also got into the mix, criticizing Housing and Urban Development Secretary Shaun Donovan for potentially exposing taxpayers to greater risk by allowing the Federal Housing Administration to provide more assistance to struggling homeowners.
“It seems that the administration’s main proposal to revive our struggling housing markets is to move more people onto the Federal Housing Administration’s dime. There’s one pretty big problem with that, though — the FHA is broke,” said Sen. David Vitter (R-La.) in a statement.
Mounting his own defense, Donovan assured lawmakers that a proper balance between providing affordable mortgages and solid finances is an utmost priority under his watch.
"The fact is I am confident ... that we are taking responsible steps to protect the FHA fund and at the same time to ensure that the housing market continues to recovery," he said.
The FHA recently received about $1 billion as part of a broad settlement regulators reached with the nation's largest banks over mortgage servicers. The cash infusion came at an opportune time, as the White House's recent budget proposal estimated the FHA would have otherwise emptied its cash reserves in the upcoming year and might have had to tap the Treasury Department for additional reserves.
Sen. Bob Corker (R-Tenn.) also blasted Donovan for what he said was an "overly political approach" to the nation's housing situation.
"I'm personally disappointed and I hope we'll begin addressing the real issues that we have in our country in housing in a way that is fair to all Americans," he said.
Congress did not just dole out scrutiny at the hearing, though — DeMarco told Congress that if it wants the housing market to get a healthy makeover with more robust private participation, lawmakers need to come up with a roadmap to get there.
"If they're going to make a permanent and lasting investment in bearing mortgage risk, they're going to need much more certainty about the role of the government," he said.
Donovan agreed that the current model is unsustainable.
"It is, structurally, a model that we should discontinue," he said of the current arrangement. "It is not the right model for the future.
But he added the caveat that a prominent government presence in the housing market was necessary during the downturn to keep credit flowing.
"We took very difficult steps to stand behind, to back those loans, to make sure that interest rates continue to be at a level where folks can buy homes," he said.
Donovan's cautioned was reiterated by Federal Reserve Governor Elizabeth Duke, who warned that "much, much less lending" would occur if Fannie and Freddie disappeared tomorrow. She also echoed DeMarco in calling on Congress to craft a plan that lays out the future for the housing finance system.
Corker lambasted lawmakers for failing to come up with a comprehensive plan for overhauling the housing finance system.
"Congress up here has not done a single thing, is totally feckless, feckless as it relates to these issues," he said.
The hearing came on the heels of fresh data showing that the housing market is still searching for its bottom, nearly six years after the subprime mortgage bubble burst.
Home prices nationally fell 3.8 percent in the last quarter of 2011, and were down 4.0 percent versus the same time in 2010, according to the Standard & Poor's/Case-Shiller Home Price Index released Tuesday. Prices nationwide have fallen 33.8 percent from the prior peak in the middle of 2006.
The continued slide indicates that while falling home prices might be slowing, the struggling market is still searching for its bottom. The data is particularly disappointing after losses began to slow in the middle of the year and some cities actually began to see prices climb, suggesting the market might have been regaining its footing.
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