A blueprint for Obama, Fix Housing
Fix housing. Several new economic studies show that the worst head wind against economic recovery comes from the dismal state of American families’ balance sheets. Even after years of proliferating foreclosures and cutbacks of credit card balances, household debt today is $11.5 trillion, 2 1/2 times the level of 1999 and on average nearly 120% of disposable income.Three quarters of the total is mortgage debt. That’s a nearly unprecedented drag on household net worth, and one that prevents families from spending at the level needed for recovery.
Yet as I’ve written before, the administration’s homeowner rescue efforts have been pathetic. As part of the $700-billion banking bailout of 2008, about $50 billion was supposed to be devoted to mortgage relief, including nearly $30 billion to the mortgage modification program known as HAMP. Of that sum, only about $2 billion had been spent as of June 30, according to the bailout program’s inspector general. The government made sure that bailout money got to the banks, even some that didn’t want it. But homeowners have gotten barely a taste.
That remaining HAMP money is part of an unspent balance of $53 billion in the bailout program that may still be available for disbursement, according to the inspector general, depending on how it’s used. Obama may not need a further congressional vote to use it. His first order of business should be to dramatically restructure HAMP, say by taking the initiative for mortgage modifications away from the banks, which have done almost nothing but gum up the process. And then put that money to use.
Another idea the White House should get behind is a “right to rent” law that has been kicking around Congress since 2008. Strapped and underwater homeowners facing foreclosure would have to be offered the option of turning over their mortgages to their banks and renting their homes for five-year terms at market rents. At the end of the term they would be offered the option to reacquire the property at its then-market price.
This plan would encourage banks to negotiate modified mortgages more seriously, as banks want to be landlords even less than they want to be real estate owners. It would cut way back on the problem of abandoned or trashed properties, as the foreclosed owners would have an incentive to keep them maintained. It would reduce the cost of housing for affected families to a more rational level, as rents in foreclosure-rich zones have generally fallen well below mortgage payments. And it could be done without any cost to the government.
