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LONGSTANDING U.S. BELIEF - "Everyone Deserves to Own a Home!" Is it Being Re-Thought by Obama, McCain?


Does every American family deserve to own their home?

A few years ago, if you asked President George Bush, the answer would be a resounding "YES!" 

"I propose that mortgages that have FHA-backed Insurance pay no down payment.  What we're trying to do is make it easier for somebody to own a home, and there are practical ways the government can help,"  the President said . . . in April, 2004, while campaigning for a second term in the White House.

Compare that to Republican Presidential Candidate John McCain's remarks earlier this month - "In the future, Fannie (Mae), Freddie (Mac), or any government organization should never insure a loan that the homeowner doesn't have enough of his or her own capital in the investment."

You don't have to look far to find the reasons for the drastic change in attitude.  Nationwide, loan defaults and foreclosures are skyrocketing.  Inventories of homes for sale remain exceedingly high.   Lenders, in tandem with Fannie Mae and Freddie Mac, and Private Mortgage Insurance companies have dramatically tightened their underwriting standards for new loans. 

And distress and misery continues to mount for homeowners borrowing a couple of years ago using high-leverage, and now finding their mortgage balance exceeds their current market value.

To be sure, both Republican John McCain and Democrat Barack Obama still point to owning a home as a fundamental cornerstone of living in the U.S.  But both offer different opinions of how Americans should be able to achieve that goal.

"This is something the next administration will have to deal with: Are they going to be pushing people into homeownership?" said Dean Baker, Co-Director of the Center for Economic and Policy Research in Washington.  He is a critic of the Federal Government advocating home ownership for everyone.

Every U.S. Administration for the last 80 years has fostered the growth of individual home ownership.  Beginning in the 1930's, President Franklin Roosevelt's New Deal Policies made it easier for many Americans to find a mortgage loan.  It eventually led to the thirty-year amortized mortgage common today.  After World War II, home ownership became an explicit priority at virtually level of government.

Washington advocated giant U.S. Mortgage Funders and Guarantors Fannie Mae and Freddie Mac expand their role providing loans for low- and middle-income borrowers during the 1990's.  Eight years ago, President Bush set the tone for a more aggressive road to home ownership.  He pushed for lower down payments for home buyers,  as well as special vouchers that would encourage public-housing tenants to strive toward buying a home.

This year, Democrat Obama has proposed a 10% mortgage interest tax credit for homeowners who don't itemize on their Federal Tax Returns. His goal - to grant more  middle-income Americans an additional tax subsidy.  According to the Internal Revenue Service, roughly 2/3 of U.S. Taxpayers don't itemize on their returns.  Obama estimates that the provision would provide an average $500 each to 10 Million prospective homeowners.

Mr. McCain proposes a more conservative approach.  He advocates raising down-payment requirements on loans backed by the Federal Housing Administration and other federal agencies.  He further warns against lending to homeowners who haven't paid in enough of their own capital for their prospective real estate investment.  In essence, he advocates those buying a home to have more "skin in the game."

The recent takeover by the Fed of Fannie and Freddie points up the difference in the strategies of the two candidates. 

McCain supports downsizing the companies, followed by selling them off, and severing all ties to the government.  Senator McCain's advisers have called for the FHA  to make mortgages available to borrowers who otherwise might not qualify.  Senator Obama's advisers have argued against privatization. "If your only plan is privatization, that is reckless and ideological and risks affordable housing in this country," said Obama Economic Adviser Jason Furman.

Both candidates have called for big mortgage reform, to make the home loan process easier to understand for homeowners, and less susceptible to fraud.  Earlier this year, McCain rejected the use of taxpayer money to bail out speculators or financial institutions and warned against rescuing irresponsible players, from big banks to small borrowers. 

At the same time,  Obama has called for amending the federal bankruptcy code to allow judges to force mortgage lenders to take a loss on their loans as part of a Chapter 13 settlement.  Obama also supports creation of an affordable-housing trust fund, as a dedicated source of funding for low-to-middle-income housing.

The candidates' different approaches are notable now, and it will be interesting to see how they evolve between now and the Presidential Election, less than two months away.

For more, read Nick Timiraos's story in last Friday's Wall Street Journal.


Posted: Wednesday, September 17, 2008 10:32 PM by Dean's Team


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