The government announced new measures this week to help struggling homeowners by expanding the number of buyers that can refinance their mortgages and take advance of low interest rates. Homeowners characterised as “underwater” borrowers – those who owe more in loans than their home is worth – can qualify for the program if they have remained current on their payments. Previously, it was impossible to refinance a mortgage if your debts were greater than 125% of the house’s value. That gap has been eliminated as part of these measures.
The measures are being instituted by the Federal Housing Finance Agency in coordination with the Obama administration. The president’s administration is touting the program as an economy-boosting move: with 11 million underwater borrows in the country, around 1 million of which may partake in this expanded program, the White House is predicting savings of $200 per month and a subsequent boost to the housing market. But data suggests that payments may only be reduced by $26 dollars per month, a minimal savings even when aggregated across the U.S. housing market.
As with countless earlier plans, this one also fails to have any meaningful long-term significance. Sure, it certainly will help pull some homeowners out of the water when the housing market is at its worse. But it fails to address any of the issues at the root of the crisis. Even as millions of people across the country struggle with their homes dropping in value, new construction continues to rebound after its post-housing bubble lull. This new construction continues to saturate an already saturated market, leaving declining neighborhoods in its wake – and paving the way for another housing bubble in the future.
Instead of making it easier for underwater homeowners, the government – and the long-term economy – might be better served by creating limits on new construction in outlying areas of metropolitan areas. Such a measure could curtail exurban growth, promote density and urban reinvestment, and reduce gas and infrastructure costs. After all, as many commentators have noted, the American dream of building a cheap new home 30 miles from the city – a place where you can barbecue in a vast backyard and watch football online in a spacious den – is certainly not sustainable.
As a political move, however, Obama’s housing measures position him well against the Republicans for 2012. The G.O.P. has actively resisted the recently-proposed jobs bill that includes infrastructure improvements and tax cuts for the middle class. In response, Obama’s “we can’t wait” approach positions him as a doer who is more in tune with the American people. Although his executive measures regarding housing – as well as those planned in education and other areas – may not have much of an impact on the economy, they still allow him to somewhat transcend the partisan stalemate in Washington. It won’t be easy for Obama to convince voters next year that he does not deserve ownership over the bad economy, but repeated signs of Republican opposition to reform can only help his cause.
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