Ask Obama This: What about housing?

What went wrong with the administration's mortgage policies

Over the final month of the campaign, CJR will run a series of posts under the headline “Ask Obama This” and “Ask Romney This,” suggesting questions that reporters should pose to the presidential candidates. So far we’ve asked President Obama about his jobs plan, and Governor Romney about foreign policy. This installment asks President Obama about his housing policies.

When assessing Barack Obama’s economic policies, you have to start out by acknowledging that the president George W. Bush left him a God-almighty mess to clean up. The worst economic and financial crisis since the Great Depression meant panic all around: A devastated housing market, an imploding banking system, soaring unemployment, a stock-market crash, an enormous budget deficit, a huge trade deficit, debt-saddled households, and a massive and unpopular bank bailout program.

Faced with that daunting list of challenges, which is by no means comprehensive, Obama administration’s policies—including the stress tests, the continuation of the bank bailouts, and, most especially, the American Recovery and Reinvestment Act (aka the stimulus)—helped prevent a complete collapse.

But there have been real failures along the way—ones that have had immediate impact on millions of individual families losing their homes and harder-to-quantify ones like the re-empowering of too big to fail Wall Street. On housing policy, both of these come together.

No administration, faced with a disaster like 2009, could have aced everything, but on housing at least, it’s hard to see much of anything the administration got right.

The catastrophic bust in the housing market caused the deep recession and has depressed the economy for five years now. Most economic recoveries are led by housing, and with the market in such a shambles when Obama took office, any plan to get the U.S. back on track quickly had to deal with the massive overhang it presented.

But Obama’s policies to ameliorate the bust have been anemic and ineffectual. Essentially, and presumably unintentionally, Obama’s policy has been a liquidation policy: Let the foreclosures go through, let millions of people lose their houses, and let housing prices find a bottom.

Here are some questions for the president on housing:

Your foreclosure-prevention programs failed according to your own standards. HAMP, the Home Affordable Modification Program, aimed for 4 million modifications. Three years later it has accounted for less than 700,000. HARP, the Home Affordable Refinance Program aimed for 4 million refinancings. It has done just 838,000.

Why did you leave the banks—who had an incentive to delay recognizing losses— in charge of your mortgage-modification program? Why did you give the banks such small incentives to carry through mods?

Why did Making Home Affordable not insist on principal reduction for underwater borrowers? Why has it spent just 12 percent of what you promised three years ago? Your FHA Refinance Program promised $8.1 billion and spent just $50 million. Your program to help families in the hardest hit states has spent just $1.1 billion of the $7.6 billion allocated. By contrast, virtually all of the funds allocated for bank bailouts were used. Why the disparity?

In the 2008 campaign, John McCain pledged to use $300 billion from the TARP bailout to buy up underwater mortgages, reduce the principal, and keep homeowners in their houses. Your housing program has been far more conservative than McCain’s. Why?

Also in that campaign, you said you would support so-called cramdown, a law that would allow bankruptcy judges to modify homeowners’ mortgages. When you came into office your administration, led by Tim Geithner and Larry Summers, effectively killed it. What changed?

Your administration hasn’t prosecuted a single individual at a major Wall Street bank for the mortgage crisis. At the same time, you’ve sued several giant banks for hundreds of millions of dollars for mortgage fraud. How can a bank commit fraud without any of its bankers committing fraud?

Seven months into your administration, the Bush-appointed Federal Housing Finance Agency’s director resigned, offering you an opportunity to pick someone to oversee regulation of Fannie Mae and Freddie Mac, the critically important mortgage-finance companies nationalized by the Bush administration. You waited some 15 months to nominate someone, by which time it was too late to avoid Republican filibuster. As a result, Ed DeMarco, the acting director, still in power at FHFA, has stymied the housing recovery and your own policies by preventing principal reductions at Fannie and Freddie. Why did you wait so long to fill a spot at this critical agency?

Finally, if you had it all to do over again, which you kind of will if you win a second term, what would you do differently?

Related stories:

Ask Obama This: Where’s your short-term jobs plan? A missed chance at the debate creates an important opportunity for reporters on the trail.

Ask Romney This: What will you do about the Middle East? Vague slogans won’t do the job. What about specifics?

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,