Barack Obama’s second term as president must see the US get to grips with its shattered housing market, argues Paul Bellamy
The morning after
As I headed to bed tonight, persuaded that Obama had won another term as President, I took one last look at my email. A colleague and policy analyst sent an email at two minutes after midnight with the following subject line: ‘Ok, time to fire DeMarco, Day 1’.
No text, just the subject line referencing the director of the FHFA, the federal agency tasked with regulating the gargantuan mortgage government-sponsored enterprises (Fannie Mae and Freddie Mac) that together hold nearly half of all US mortgages, totaling just over five trillion dollars. Edward DeMarco has taken a hard line against reducing the principal balance on the millions of ‘underwater’ mortgages held by the GSEs. That hardline position continues to impose incalculable loss and suffering upon those 10 million plus unlucky Americans who were caught owning homes at the very instant the US banking industry blew up the American (and global) economy.
The catastrophic collapse in home values that followed Wall Street’s criminally irresponsible gambling binge destroyed over seven trillion dollars of real estate wealth. It will probably take more than a generation for many areas, such as Cleveland, Ohio, to rebuild the banker-destroyed equity. Simultaneous with DeMarco’s imperious disregard for the unfairness foisted upon American homeowners is the increasingly blatant coddling he reserves for bankers and mortgage investors. His latest initiative would make it easier and less risky for lenders to sell defective loans to Fannie and Freddie. His grand idea is to loosen capital markets by stripping the GSEs of their repurchase rights when they have been snookered into buying a lousy mortgage misrepresented as sound and in compliance with contract terms.
Housing advocates, who see the issue of principal correction as both a fairness and economic recovery issue, revile DeMarco and his moralistic bluster and posturing in favor of the creditor classes. For more than a year they have been frustrated by Obama’s refusal to fire him and put another ‘recess appointee’ in charge of the FHFA. The Obama administration has attempted to explain the reluctance to oust DeMarco as a function of the renegade Senate which, they assure us, would not confirm an Obama- selected replacement for DeMarco.
‘After the election,’ they have murmured to the advocates. ‘We feel your pain, the day of reckoning will come,’ they coo. But skepticism remains.
This is especially so when it is clear that Obama has won most of states where underwater homeowners number in the millions: California, Nevada, Colorado, Florida, Michigan, Virginia, Wisconsin and Ohio. With nary a word during the campaign about the plight of borrowers indentured to bankers with no prospect for home equity for years to come, it is difficult to take these whispered sweet nothings as anything more than, well, nothing.
But when we wake up tomorrow, at least we won’t have to contend with Mr Romney who never even bothered to express concern for the vast majority of American voters victimized by Wall Street. Will it matter for debt-burdened homeowners that Obama has won another four years? Probably not, if the first four years was any indication. Billions of campaign dollars up in smoke but fear not, the election is finally over - and the duopoly perseveres.
Paul Bellamy is director of development and research at ESOP, a housing organisation in Cleveland, Ohio