Zandi, Policy Experts, Suggest Fixes for Housing Paralysis

Mortgage Banking, November 2011 | Go to article overview

Zandi, Policy Experts, Suggest Fixes for Housing Paralysis


Temporarily lifting oversight for Fannie Mae and Freddie Mac out of the Federal Housing Finance Agency (FHFA) and moving it into the White House was one idea floated by a member of a panel of housing policy experts at the third general session of the recent Mortgage Bankers Association annual convention. The thinking was it could allow Fannie and Freddie to act far more aggressively in helping borrowers.

Jared Bernstein, former economic policy adviser to Vice President Joseph Biden, said that the "GSEs must be in the game" if the housing market is to be lifted out of its current troubled state.

He added, "I think the (government-sponsored enterprises] could get more aggressive with loan modifications in a way that they are not."

Bernstein, senior fellow with the Center on Budget and Policy Priorities, Washington, D.C., said there is regulatory dissonance that is keeping Fannie and Freddie from playing a more active role with loan modifications and other housing-rescue efforts. Their regulator--the FHFA--views its main mission as protecting the taxpayer during the time that the GSEs remain in conservatorship. And that is creating "regulatory dissonance" by preventing the GSEs from acting more aggressively, according to Bernstein,

Bernstein said, 1 don't tault Fannie and Freddie for the stance they are taking right now. The FHFA views its job as protecting the taxpayers. But it is actually hurting taxpayers and the economy."

He added, "It may be apt to turn over the authority of the FHFA and put it under the authority of the White House for some temporary period, for some number of months."

[ILLUSTRATION OMITTED]

The CSEs have not permitted principal reductions to be done on the loans they own.

Bernstein referenced a well-known refrain coined during a prior presidential contest. He said, "It used to be 'It's the economy, stupid.' Now, 'it's DeMarco, stupid.'"

Mark zandi, chief economist with Moody's Analytics, West Chester, Pennsylvania, also on the panel at the same general session, advocated the immediate adoption of an accelerated depreciation schedule for investors in real estate-owned (REO) properties.

Zandi said that there more than 3 million loans either in foreclosure or close to it. He said there are roughly 1.3 million in excess housing units. He added it would take a couple of years to work through all that inventory.

Zandi said the market could see an immediate benefit from giving tax incentives to investors for the purchase of REOs. Such a move to adopt accelerated depreciation schedules for these properties could have a big impact in calendar-year 2012 and it would come at no cost to taxpayers, he said. The Congressional Budget Office (CBO) would score such a policy move at zero, so it would be more likely to win congressional approval in a budget-constrained political environment. Zandi added that it would be a much faster fix than what the administration is considering by running several pilot programs based on submitted proposals for renting the GSE-owned REOs.

Zandi acknowledged that Fannie, Freddie and the Federal Housing Administration (FHA) together account for one-half of all the REOs in the market. But their share "is increasing very rapidly and that will be the issue for the next four to five years," he said.

James Parrott, the moderator of the general session and a senior adviser on the National Economic Council, said the administration issued a request for information to pursue some pilots in various markets where investors would buy and rent REOs. …

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