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Posted on 08/06/2013 2:00:26 PM PDT by whitedog57

President Obama is in Phoenix today to discuss fixing the housing market. It is reminiscent of President Franklin D. Roosevelt’s speeches in the 1930 on how to fix the housing market. The federal government began its response to the housing crisis in 1932, with the enactment of the Federal Home Loan Bank Act (the Bank Act). The Bank Act created the Federal Home Loan Bank System and the Federal Home Loan Bank Board (FHLBank Board) as its regulator. The federal government also created the Home Owners’ Loan Corporation (HOLC), the Federal Housing Administration (FHA), and Fannie Mae. And the creation of the 30 year fixed-rate mortgage rather than the short-term balloon notes that were previously used.

Following in the path of FDR, Obama is suggesting a NEW Fannie Mae, the preservation of the 30 year fixed-rate mortgage, and expanding the credit box (aka, relaxing credit requirement for mortgages). And 5% down payment mortgages (which The Fed calls semi-prime).

But do we need everything Obama is pushing, such as more low down payment (but actuarially fair) mortgages? Like FHFA Director Ed DeMarco put into place (and may be replaced by Mel Watt)?

1) National homeownership rates are back to 1995 levels, a seemingly stable place to be. Notice that there was a Carter homeownership bubble that deflated as well.

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2) Mortgage purchase applications are back to 1996 levels, another seemingly stable place to be.

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So why do we need to expand the credit box? How about “Let sleeping dogs lie?”

shepsleep

3) In terms of touting the housing recovery, 7 out of 10 jobs created under President Obama have been part-time jobs. It is hard to have a HOUSEHOLD BASED housing recovery with a part-time labor force. This recovery is a foreign investor/hedge fund recovery.

3a) In addition, Obama said that immigration reform would improve the housing prices. Adding 40 million low-wage workers to an already disastrous labor market where 70% of jobs created are part-time?

4) Obama wants to preserve the 30 year fixed-rate mortgage (created in the 1930s). Currently, the adjustable-rate mortgage is only at 5.8% market share. It seems like the fixed-rate mortgage seems to have survived.

armperc90

5) Obama raised concerns that the 30-year mortgage might disappear if Fannie Mae and Freddie Mac are closed because banks have been unwilling to lend for such a duration without a government guarantee. So The President wants an explicit guarantee to preserve the 30 year fixed-rate mortgage; the mortgage finance giants have helped ensure the availability of 30-year mortgages for generations.

But while Obama previously called for the closing of Fannie Mae and Freddie Mac, he is not suggesting a replacement, like Corker-Warner. Logically, this will require yet another government insurance program (like FDIC, FSLIC, Medicare, etc). But thus far, there are no safeguards in place that constrains the Corker-Warner approach from expanding lending for political reasons. So, this is a rebadging of FDR’s housing legislation.

6) President Obama will tout the success of the signature HAMP and HARP programs. But homeowners have redefaulted on the oldest HAMP permanent modifications at a rate of 46%. Odd sort of success.

An investor led housing recovery, thanks to The Fed’s low rate policies and declining 10 year Treasury rates, not government programs.

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Let’s see how the Afforable Healthcare Act (aka, Obamacare) impacts the housing market, particularly once it hits the iceberg.

Titanic-redo

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