Forget the Debt Ceiling, Focus on Housing


NEW YORK (MainStreet) — The Obama administration and Congress are anxious to get the debt debate behind them so they can focus on an equally big problem: the U.S. housing market.

President Obama is reportedly ready to float several reform ideas, including having lenders write down more mortgage principal amounts to keep struggling U.S. homeowners out of foreclosure, and urging banks to extend more credit to borrowers to spur home sales. 

In a July 7 Town Hall meeting organized through Twitter, President Obama says that the housing issue is as great a priority as the debt ceiling issue, although keeping people in their homes is an uphill climb.

“We’ve had to revamp our housing program several times to try to help people stay in their homes and try to start lifting home values up,” Obama says. “But of all the things we’ve done, that’s probably been the area that’s been most stubborn to us trying to solve the problem.”

President Obama does feel that the real solution to the weak housing market must come from the private sector and not from the federal government, though he admitted that both can play a big role.

“Given the size of the housing market, no federal program is going to be able to solve the housing problem. Most of this is going to be free market,” Obama said. “The one thing that we can do is make sure that for homeowners who have been responsible, didn’t buy more house than they could afford, had some tough luck because they happened to buy at the top of the market, can afford to continue to pay for that house, can afford their current mortgage, but need some relief, given the drop in value -- that we try to match them up with bankers so that each side ends up winning.”

Housing market monitor HousingWire reports that Rep. Barney Frank (D-Mass.) has a plan to lengthen the current conforming mortgage loan limits that establish the terms of federally backed housing loans which are set to expire in October. The White House is reportedly on board to support such it.

The mindset is this: If the federal government guarantees higher loan limits, private mortgage lenders would be more amenable to loaning homebuyers the money they need to buy homes. Banks have repeatedly indicated they would prefer to extend homeowners more credit, but not without a government safety net in place. 

Two representatives introduced a bill in Congress on July 15 to extend higher mortgage loan limits by another two years.

“The housing market does not need to a self-inflicted wound,” says Rep. Gary Ackerman (D-NY), co-sponsor of that bill. “Reducing the conforming loan limit would hurt home values, increase the cost of down payments and interest rates, and shut prospective buyers out of home ownership. It is essential that we continue to do all that we can to stimulate our economy, and keep these mortgage limits in place to ensure that the housing market remains on the delicate road to recovery.”

The conforming loan limit issue is only the latest salvo to be fired out of Washington to solve the housing crisis. Look for the White House and Congress to also focus on reforming Fannie Mae (Stock Quote: FNM) and Freddie Mac (Stock Quote: FRE), and for the White House to try to twist some arms in the banking sector to cut home loan principal amounts.

It’s a full plate and right after the debt issue is resolved, look for the President and Congress to dig right in.

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