Obama Administration Sets Its Sights on Housing Reform

The Obama administration – fresh from its financial regulation reform legislative victory – is not resting on its laurels.  Next on the busy agenda is reforming the American housing market, which is viewed by many as the root of the financial crisis. In a response to collapsing housing prices and waves of foreclosures, the administration it looking at overhauling the government’s housing policy, although the specifics of the proposed legislation are still under discussion.

The new approach could include bigger downpayments and higher interest rates, as well as more barriers to lower-income people purchasing houses they cannot afford.  The goal is to create a more stable housing market that puts fewer taxpayer dollars on the line and lessens the risk that owners will be unable to pay their mortgages.  Reform also could bring changes to the financial markets as investors are forced to find new investment vehicles if the government removes incentives for putting their money in the mortgage market.  Since the financial crisis began in 2008, the federal government has spent hundreds of billions of dollars to keep housing afloat and assure that borrowers can get loans – and much of that money will never be recovered.  Since the federal government seized Fannie Mae and Freddie Mac, the two mortgage giants and the Federal Housing Administration have more or less been the sole sources of backing for new mortgages for nearly two years.

The Treasury Department’s new Office of Capital Markets and Housing Reform is studying options and has decided that federal policy should highlight “sustainable homeownership” rather than merely growing the rate of ownership.  According to Vincent O’Donnell of the Local Initiatives Support Corporation, “My impression is that the administration at pretty much every level is serious about a balanced policy.  Their purpose is to make more workable rental housing programs.”