Christopher Papagianis

Predicting the future of housing policy

Christopher Papagianis
Aug 13, 2012 18:00 UTC

Recent changes to a mortgage refinancing program finally have it running smoothly and helping “underwater borrowers”: Can Congress really ignore this?

Fannie Mae and Freddie Mac’s Home Affordable Refinance Program (HARP) helps borrowers who are underwater (and only those who are current on their payments) refinance their mortgage at lower interest rates. While it took lenders a few months to implement the changes, hundreds of thousands of borrowers have already refinanced their mortgage or are in the pipeline to do so. The new HARP 2.0  includes a pricing regime that encourages borrowers to refinance into mortgages with shorter terms, which means borrowers are building back equity in their homes faster. And that is good.

Congress just broke for its August holiday, so we will have to wait until September for the next flare-up in housing policy. However, a debate was recently reignited that leaves plenty of room for thought.

Ed DeMarco, acting director of the Federal Housing Finance Agency, decided on the last day of July against allowing Fannie Mae and Freddie Mac to write down mortgage debt for underwater borrowers. This debate is several years old – and there is perhaps no other housing-related issue that has engendered as much partisan frustration.

Treasury Secretary Tim Geithner immediately sent a letter condemning DeMarco’s decision. But as Neil Barofsky (the former inspector general of TARP) noted in a recent column for Reuters, the simple fact that Secretary Geithner chose (merely) to send a letter demonstrates that what matters most in housing these days is, sadly, politics over policy. Barofsky continues: “Although one can argue whether principal reductions are the right way to address the ongoing housing slump … no one should be fooled that the administration’s entreaties to Mr. DeMarco are anything but political posturing.” Moreover, the entire effort “seems primarily intended to distract attention from [the administration’s] own failed policies.”

What could hold back the start of a recovery in housing this year?

Christopher Papagianis
May 31, 2012 16:27 UTC

This post is adapted from the author’s testimony at a recent hearing before the U.S. Senate Banking, Housing, and Urban Affairs Committee.

Many of the major negative housing trends that dominated the headlines since the crisis are now well off their post-crisis peaks. While prices are only flat to slightly down year-over-year, there is finally some optimism for probably the first time in more than three years. But before we get ahead of ourselves, let’s examine some of the economic fundamentals and also assess the policy and regulatory headwinds that are still blowing from Washington.

New delinquencies are trending lower on a percentage basis. The decline in home prices also appears to be leveling off or approaching a bottom on a national basis. Data from CoreLogic suggests that house prices have increased, on average, across the country over the first three months of 2012 when excluding distressed sales. Even the numbers from the Case-Shiller Index out this week suggest that a floor in home prices has been reached.