'We're Wiping Away Tears'

Dozens of industry leaders joined lawmakers and policy strategists in early October for a sobering meeting on Capitol Hill in Washington to identify solutions to the housing crisis, now in its fourth year and with little good news on the horizon. “We as an organization are holding the hands of home  owners that need help and people who want to buy,” said NAR President Ron Phipps. “We are wiping away tears. This is real human cost. We need to stop pointing fingers and set an example and lead.”

Phipps’ message was underscored by a piece in The Wall Street Journal that ran on Oct. 4, the same day as the meeting, that said the country’s economy can’t turn around without the federal government taking decisive action on housing. “It’s time to stop trying to work around housing, and take it on,” the Journal’s Neal Lipschutz said.

Answering the challenge, participants in the meeting, hosted by two think tanks, the Progressive Policy Institute and Economic Policies for the 21st Century, rattled off steps the administration and Congress could take to get housing moving again (see five of those ideas below).

Looking over the long term, participants widely agreed the federal government must stay in the mortgage finance market and provide an explicit guarantee. “I spent a lot of time in my last job [as FHA commissioner] talking to banks in China and around the world. Most investors would not invest unless [the security] was Triple A and unless it had an explicit guarantee,” said Dave Stevens, president and CEO of the Mortgage  Bankers Association.

“The market can self-correct,” said Phipps, “but the pieces need to be put into place.”

Appraisal-free refis for underwater borrowers. “We already know they’re under water,” Rep. Dennis Cardoza (D-Calif.) said at the meeting. “The government guarantees these mortgages. We can establish a new floor and allow people to refinance at current interest rates. Extend the terms to 20, 30, or even 40 years,” Cardoza said. For little cost to the federal government, the refinancings will have a significant stimulus effect on the broader economy as households’ cash positions improve, he said. Stan Humphries, Zillow chief economist, agreed the idea made sense from a stimulus standpoint. “It is a great economic stimulus if it [generates] about $70 billion [a year],” he said.

Shared-equity refis. Encourage lenders to allow underwater borrowers to refinance and write down the balance to the market rate in exchange for the lender taking an equity position in the home and imposing some resale restrictions in the early years of the new mortgage term.

Assumable government-backed loans. Allowing government-backed loans to be assumable would make buying today more appealing because buyers would know their mortgages would be attractive to buyers five or 10 years down the road, when interest rates are likely to be back up to 7, 8, or 9 percent. “That would be a very good asset to carry into the next decade,” said Richard Smith, president and CEO of national brokerage  giant Realogy Corp.

Bulk investor foreclosure purchases. Keep foreclosure purchases by owner-occupant buyers and communities a priority, but also pave the way for more investor participation. One possibility, said Dave Stevens, FHA commissioner during President Obama’s first two years in office and current president and CEO of the Mortgage Bankers Association, is to open Sec. 204(k) FHA single-family loans to broader participation.

National servicing standards. Right now, different federal regulators are getting involved in servicing issues, and lenders are negotiating with attorneys general in the 50 states separately over issues arising from servicing problems. This piecemeal approach is holding back lenders’ ability to move forward with new efforts to help borrowers, Stevens said.