The ongoing housing crisis remains one of the biggest drags on our economic recovery. But less than three months before a presidential election viewed by many as a referendum on the economy, housing is little more than a side conversation on the campaign trail.
President Barack Obama has barely mentioned housing in recent months, aside from occasional pitches for reforms to help more homeowners refinance. Presumptive Republican nominee Mitt Romney’s 59-point economic plan unveiled last year makes only a couple of passing references to housing, and Gov. Romney is yet to release any substantive housing proposals since.
As our presidential hopefuls stay silent, the sluggish housing market continues to plague our economy. The historic decline in home prices since 2006 has cost Americans more than $7 trillion in household wealth, forced millions of families out of their homes, and left nearly one in four homeowners owing more on their mortgages than their homes are worth. Private investment in housing is a fraction of its historic norm, translating to billions in lost economic output and millions of missing jobs. And more than five years into the crisis, the U.S. mortgage market remains on life support as the federal government guaranteed more than 95 percent of home loans made last year.
The U.S. housing market is where the Great Recession began and we’re unlikely to see a full recovery until the market heals. The housing sector historically accounts for about one-fifth of our economy and housing booms paved the path to our last three economic recoveries. But few analysts expect such a boom anytime soon.
We can no longer afford to ignore these problems. As the presidential campaign shifts into high gear in the coming weeks, President Obama and Gov. Romney must lay out their respective visions for housing in the United States. This brief lays out seven essential questions the presidential candidates need to answer on housing, including:
1. What will you do to prevent more unnecessary foreclosures and keep more families from losing their homes?
2. How will you address the problem of “underwater” mortgages?
3. How will you revitalize communities already hit hard by the foreclosure crisis?
4. How will you meet the pressing need for affordable rental housing?
5. What will you do to assure that working and middle-class families can achieve homeownership in the future?
6. What do you plan to do with the government-backed mortgage giants Fannie Mae and Freddie Mac, and what will take their place in the mortgage market of the future?
7. How do you plan to protect households from predatory lending and discrimination in the U.S. mortgage market?
Each question includes key facts for voters, reporters, and other key stakeholders, as well as a brief discussion of why the issue matters and CAP’s recommendation for fixing the problem.
Foreclosure is often the worst-case scenario for every party involved, since it results in extraordinarily high costs to borrowers, lenders, and investors—not to mention the spillover effects on the surrounding community and the broader economy. And since millions of at-risk mortgages are owned or guaranteed by the federal government, taxpayers are on the hook for billions in foreclosure-related losses.
There are several ways to lower an at-risk borrower’s monthly payments and increase the chance of repayment. If the borrower is current on their payments, they often have the choice to refinance to today’s historically low interest rates, saving an average of $2,600 a year in interest payments.18 If the borrower has fallen behind, the investor can often save money by working out a new deal, usually by extending the loan’s terms, modifying the interest rate, deferring payments, or lowering the amount the borrower actually owes on the loan—so-called principal reduction. Or, if the borrower either can no longer afford the house or does not wish to stay, they can still leave gracefully without going through a foreclosure, either by handing the home back to the lender (known as a deed-in-lieu-of-foreclosure) or negotiating a short sale with the mortgage investor.
In a well-functioning market, the lender or mortgage investor responsible for the loan considers a range of options when deciding which intervention is best for the specific borrower, and negotiates a deal that minimizes losses and keeps families in their homes when possible. But we’re not in a well-functioning market. Recent experience has shown that mortgage servicers—the companies in charge of collecting timely mortgage payments on behalf of the investor—are often unwilling or unable to work with struggling homeowners, even when those homeowners want to work with them. The result is unnecessary foreclosures which harm the borrower, the investor, surrounding homeowners, and the larger economy.
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