December 15th, 2008 3:32 PM

Campaign promises

Obama has an economic plan, but he hasn't yet offered an aggressive action plan to save the housing market. So far, his campaign promises have been piecemeal proposals, such as:

• A three-month moratorium on foreclosures, giving banks time to collect money from the $700 billion bailout plan

• Altering bankruptcy laws to allow courts to adjust mortgage terms

• Better enforcement of mortgage fraud legislation

• A universal mortgage credit available to those who don't itemize deductions

• Enhanced mortgage loan disclosure requirements

 

Drastic times call for drastic measures

Those promises prior to the election were enough to win the majority vote, but they won't be sufficient to force a housing market recovery. At this point, the crisis has taken on a life of its own; foreclosures are pushing real estate values down, leaving homeowners and lenders over-extended with debt.  Since lenders, too, are over-extended, they're reluctant to lend more, which further inhibits recovery by limiting home sales. To stop the cycle, the Obama administration will have to implement comprehensive measures to halt foreclosures and facilitate an increase in home sales. Some options in this vein include:

• Bend it like Bair. FDIC Chair Sheila Bair has spearheaded a movement to modify mortgages for thousands of former IndyMac Bank borrowers.  Her program has shown enough early success that the FDIC actually created a guide to help other lenders initiate a similar system. Obama's team can click over to the FDIC's website (https://www.fdic.gov/consumers/loans/loanmod/loanmodguide.html) to see how it's done.

 

• Start slashing. Some experts believe that the Feds should cut mortgage rates down to 4 or 5 percent. It's argued that doing so will draw the fence sitters back into the housing market.

 

• Do what's obvious. A few congressmen, including Senator John McCain, support a program that would have the government buy at-risk loans outright. Since the foreclosure crisis was first identified, valuable time has been wasted waiting for lenders to pick a course of action. If the government wants to force systematic loan modifications, buying up the loans may be the quickest way to do it.

 

• Bring Mae and Mac in-house. Investment gurus Ed Yardeni and Carl Goldsmith believe that the Obama camp should nationalize Fannie Mae and Freddie Mac. That would give the two mortgage companies access to money at U.S. Treasury interest rates.  They could then stir up some buying activity by offering low-rate mortgages to the masses.

Obama and his advisors hopefully have something definitive up their sleeves with respect to housing that will be more powerful than sending out a bat signal or dispatching Colonel Wilcox to find the Super Friends.

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