As Hillary Clinton and Barack Obama engage in battle for the Democratic presidential nomination, I'd like to highlight their respective plans for addressing the problems facing the housing and mortgage industries.
The candidates have some common ground in their respective approaches. Both are calling for new federal funds to assist homeowners facing foreclosure – Clinton wants a $30 billion fund, Obama is calling for a $10 billion fund. Clinton's plan is not specific on where the money is coming from, while Obama's plan (according to his campaign literature) will be ‘partially paid for by Obama's increased penalties on lenders who acted irresponsibly and committed fraud.’
The Clinton plan also calls, according to her campaign literature, for ‘bold action to end the housing crisis, with a 90-day moratorium on foreclosures and a five-year freeze on interest rates on subprime mortgages.’
Obama does not call for either a moratorium or an interest rate freeze. Instead, he's proposing a ‘Universal Mortgage Credit,’ which his campaign Web site defines in this language: ‘This 10 percent credit will benefit an additional 10 million homeowners, the majority of whom earn less than $50,000 per year. Non-itemizers will be eligible for this refundable credit, which will provide the average recipient with approximately $500 per year in tax savings. This tax credit will also help homeowners deal with the uncertain state of the housing market today.’
Finally, Clinton is demanding ‘more accountability for mortgages.’ What does that mean? According to the Clinton plan: ‘Resolution of the foreclosure crisis will require that large numbers of unworkable mortgages be converted to stable loans. To date, however, despite pressure from Congress and the press, lenders and servicers have modified only about 1% of subprime mortgages. This obviously has to change. We cannot take the industry at its words that it will follow through on an agreement to convert loans expeditiously. Accordingly, the agreement must impose on lenders and servicers an obligation to regularly report their loan modifications.’
Obama's approach is somewhat different. He is promising to push for the STOP FRAUD Act, which he unsuccessfully co-introduced last year in the Senate. According to his campaign literature, this legislation ‘provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity. This bill also provides counseling to homeowners and tenants to avoid foreclosures. Finally, Obama's bill requires the Government Accountability Office to evaluate and report to Congress on various state lending practices so that state regulations that undermine consumer's rights can be identified and hopefully eliminated.’
Obama is also promising to create a Homeowner Obligation Made Explicit (HOME) score, which his campaign says will ‘provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow Americans to easily compare various mortgage products and understand the full cost of the loan. The HOME score would also help borrowers understand their long-term obligations and would be required to include mandatory taxes and insurance.’
Perhaps the most telling aspect of these approaches is their mutual lack of mention about cooperating with the mortgage banking industry in helping to resolve today's situation. The failure of both candidates to speak about engaging the industry as a partner, instead of treating it like an adversary, should raise red flags from both originators and secondary marketing professionals.
Of course, the proposals being floated cannot be initiated without Congressional approval, and many of these considerations will most likely go nowhere on Capitol Hill (particularly the 90-day moratorium). At a time when the federal red ink is approaching oceanic depths, it will be difficult to find the enthusiasm, let alone the funds, to pursue elephantine spending projects.
And, inevitably, politicians seeking the White House almost always wind up changing their game plan after leaving the campaign trail for the Oval Office. After all, George W. Bush campaigned in 2000 on a promise of a smaller federal government and a refusal to be involved in overseas nation-building – and, of course, that didn't quite happen.
Nonetheless, the industry will need to press the Democratic nominee hard on more details of their plans. In view of what is presented now, both plans are too confrontational, litigious and expensive to be accepted at face value.
P.S. In case you are wondering where the Republican candidates are, there was inadequate data for a full compare-contrast report. Mitt Romney's campaign Web site only briefly touched the issue with the promise to ‘reform and expand Federal Housing Administration (FHA) loan portfolio limits’ and to ‘expand NeighborWorks America's Foreclosure Avoidance Initiative.’ John McCain, Mike Huckabee and Ron Paul made no mention of the current housing or mortgage issues on their respective Web sites. Whether silence and/or vagueness is preferable to fully detailed plans is (pardon the pun) open to debate.
– Phil Hall, editor, Secondary Marketing Executive
(Please address all comments regarding this opinion column to hallp@sme-online.com)
