Editor’s note: Read Marcie Geffner’s column about presidential candidate John McCain’s housing policy by at this link.
As Democratic delegates and power brokers prepare in Denver, Colo., for the political party’s presidential convention that begins tonight, real estate and mortgage professionals and homeowners may be curious about likely nominee Barack Obama’s housing proposals.
The candidate’s three-page housing policy statement doesn’t say how many houses Obama owns (one), but offers plenty of speculation about the causes of the housing crisis, tons of rhetoric about the value of home ownership and a broad overview of the programs he supports. The statement offers some general insights into Obama’s perspective on housing, but includes hardly any meaningful details about how his plans would be implemented.
Dubbed "Protecting Homeownership and Cracking Down on Mortgage Fraud," the plan aims to "crack down on fraudulent brokers and lenders," "make sure home buyers have honest and complete information about their mortgage options" and expand a tax credit for all "middle-class homeowners," according to the candidate’s Web site.
Here’s a summary of the proposals:
- Obama’s first proposal would create a new loan program at the Federal Housing Administration (FHA). This program would "provide meaningful incentives for lenders to buy or refinance existing mortgages and convert them into stable 30-year fixed mortgages." The plan is intended to create "an important federal backstop." The policy statement doesn’t detail the nature of the "incentives," but states that "neither lenders nor homeowners would receive a windfall from this plan." (The Housing and Economic Recovery Act of 2008 authorized the FHA to guarantee up to $300 billion in loans to help borrowers refinance into more affordable loans when existing lenders agree to forgive part of their debt. Borrowers would also share gains from the sale of their homes with the government.)
- A second proposal would create a $10 billion fund to assist homeowners who are facing foreclosure. The funds, to be partially offset by higher penalties on lenders who "act irresponsibly and commit fraud," would be used to "increase emergency pre-foreclosure counseling resources" and help homeowners who can’t afford to own their home to sell it by offsetting the costs of the sale, including "helping low-income borrowers get additional time and support to pay back any losses from the sale of their home and waiving certain state and local income taxes that result from an individual selling their home to avoid foreclosure." The policy document adds that the funds would not be used to aid "speculators, people who bought vacation homes or people who falsely represented their income." Obama also has called for federal legislation that would "clarify and ease the ability of loan servicers to act on behalf of" mortgage investors.
- Third on the list is a $10 billion grant to state and local governments in areas that have been "hardest-hit by the housing crisis." The funds would be used so that localities’ would need to reduce "critical public services" or "vital infrastructure spending" as a result of foreclosures. The proposal doesn’t specify how the localities would be selected, how the funds would be allocated or which services would meet those criteria.
- Obama’s fourth proposal would create a "universal mortgage credit" for homeowners who don’t itemize their federal tax deductions. The policy statement estimates that this credit would enable 10 million homeowners to reduce their tax liability by $500 on average and claims that this tax cut would "provide direct relief to many homeowners who are struggling to maintain their mortgage payments." The document doesn’t mention how Obama would offset the $5 billion cost to the U.S. Treasury.
- Fifth, Obama supports a change in the federal bankruptcy code that would allow bankruptcy courts to modify the terms of residential mortgages, an idea that’s supported by bankruptcy attorneys and judges, but opposed by banks and other lenders.
"If you want to declare bankruptcy, you can renegotiate your mortgage on your second home, but not your primary home. Who thought that rule up?" Obama said in response to a question asked during in a Feb. 13 forum in Waukesha, Wis. "It makes no sense. We have to change that."
- A sixth proposal would add an additional $10 billion to the federal mortgage revenue bond (MRB) program, which provides funds through state housing agencies. The funds would be allocated "to help families facing foreclosure refinance and to enable low- and moderate-income first-time home buyers purchase a home," according to Obama’s housing policy statement. The Housing and Economic Recovery Act of 2008 added $11 billion to states’ total MRB allocation.
- A seventh proposal, based on legislation that Obama introduced two years go, would: establish an official federal definition of mortgage fraud; increase funding for federal and state law enforcement programs; create new criminal penalties for mortgage brokers convicted of fraud; require "industry insiders" to report "suspicious activity"; provide additional foreclosure counseling to homeowners and tenants; and require the Government Accountability Office to evaluate and report to Congress on various state lending practices.
- Finally, Obama has proposed a new numerical score that would "provide potential borrowers with a simplified, standardized borrower metric … for home mortgages" and "allow individuals to easily compare various mortgage products and understand the full cost of the loan." The policy statement says this metric would be like the annual percentage rate (APR), but doesn’t explain how the metric would be calculated.
Marcie Geffner is a freelance real estate reporter in Los Angeles.
Copyright 2008 Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.
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