The Obama administration & the problem of housing

August 20, 2012 at 10:00 am

Yesterday, the Charlotte Observer ran a piece about the President and his Administration, and the persistent problem of housing in the nation’s economy. This is something we had referenced previously (here), but this article provides more of an in-depth discussion on the issues of underwater mortgages, the depressed housing market, and the President’s policy response–or lack thereof.

Rather than championing aid for homeowners, principal reductions, and more stringent rules on mortgage companies, the Administration responded to the crisis with insufficient incentives for mortgage companies to play fair and provide modifications to homeowners. This was partially driven by politics, but also driven by the fact that Obama’s advisers did not see this as a major problem and they believed that the economy would somehow work this out on its own. As the article states, the President, “tried to finesse the cleanup of the housing crash, rejecting unpopular proposals for a broad bailout of homeowners facing foreclosure in favor of a limited aid program–and a bet that a recovering economy would take care of the rest.” It also states that despite stories of homeowners struggling to make ends meet and unable to get modifications, the President’s advisers “played down the significance of these anecdotes. They saw no evidence of widespread problems, and besides, the broader strategy was working: the recession ended in June 2009, and housing prices posted the first monthly increase in three years.”

Reduction of homeowners’ debt was totally off the table, even viewed as counterproductive by some who thought that it would only encourage homeowners to stop making their payments all together. Clearly, the magnitude of the problem, its impact on the economy, and the consequences of inaction were grossly underestimated.  This is most troubling. The foundation of our national and local economies are active consumers, people who can participate in and help grow the economy. With millions of homeowners facing imminent foreclosure and taking huge hits on their personal assets and income, their ability to act as participants in the economy gets totally erased. Unless and until a certain degree of financial security is restored to these homeowners, the economy will continue to drag. And, once again, this returns to the disconnect between those in positions to affect policy–and therefore affect the lives of millions of Americans–and those who are suffering from the ongoing effects of the Great Recession.

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Entry filed under: Economy, Housing. Tags: , .

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