Freddie Mac

Historically, owning a home has been part of achieving the “American Dream.” This long-standing narrative posits that with enough hard work anyone in the U.S. can rise from modest beginnings to true economic stability often seen in the form of a stable job, a secure retirement, a comfortable place to live, and perhaps a nest egg to pass along to one's children. There are as many different versions of the "American Dream" as there are Americans, but it's fair to say financial stability in the form of homeownership is central to that vision for many people.

The Asset Building News Week is a weekly Friday feature on The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include wealth and income inequality, housing, and financial education.

The Asset Building News Week is a weekly Friday feature on the The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include education, consumer behavior, the Consumer Financial Protection Bureau, wealth, tax spending, banking, and housing. 

The Asset Building News Week is a weekly Friday feature on the The Ladder, the Asset Building Program blog, designed to help readers keep up with news and developments in the asset building field. This week's topics include savings products and financial behavior, the Consumer Financial Protection Bureau, income inequality, and housing. 

I missed this on my way out of town, but I wanted to steer people to this article by Joe Nocera of the New York Times.

He writes about the workings of an ideologically-driven campaign to lay the entire financial crisis at the feet of Fannie Mae and Freddie Mac, the government-sponsored entities charged with boosting mortgage lending. Yes, mistakes and miscalculations were made by these GSEs and we certainly should be asking what we can do differently, but in my opinion Nocera’s diagnosis is spot on. The subprime mortgage market had already exploded before Fannie and Freddie began purchasing these loans in earnest. In fact, they were actually late to the game. Once on the field, they began buying up these loans not to promote low- and moderate –income homeownership but to chase market share. They exacerbated the problem but hardly caused it. They should have stayed on the sidelines.

It was the drive for market share—and not the requirement to meet affordable housing mandates—that moved Fannie and Freddie into the already exploding subprime market. Nocera paints the picture of a textbook operation to muddy the waters of understanding, with staring roles played by the Wall Street Journal editorial page and the American Enterprise Institute. He calls it “The Big Lie” and it depends on an echo chamber to advance the thesis that government rather than actors in the financial sector are to blame for the advent of the financial crisis and its aftermath.

What to do about Fannie and Freddie remains an open question. The Obama administration has sketched out a set of potential options but (for some reason) doesn’t believe they can advance a reasonable, bipartisan discussion on the Hill. That’s too bad because there are important issues to address, such as how to help aspiring families become responsible homeowners in the future get out from under the debilitating debt of mortgages that exceed the value of thier homes. I wholeheartedly agree with Nocera’s conclusion:

Three years after the financial crisis, the country would be well served by a real debate about the role of government in housing. Should the government be helping low- and moderate-income Americans own their own homes? If so, is there an acceptable level of risk? If not, how do we recast the American dream?

To have that debate, though, we need a clear understanding of what role the government’s affordable-housing goals did — and did not — play in the crisis. And that is impossible as long as the Big Lie holds sway.

The shambles of the housing market is placing pressure on families and communities across the country. Policymakers need to expand mechanisms to deal with the current wave of foreclosures, but they also will need to rebuild the housing finance system.

This podcast offers an assessment of the Obama Administration’s recently released plan for reforming the housing finance system and explores what it might mean for the future of housing policy.

Despite the return of the stock market, the housing market remains a mess and is filled with uncertainty. Scores of families across the country are on the cusp of losing their homes and being displaced from their communities. In many cases, foreclosure is a lose-lose-lose proposition, negatively impacting families, lenders, communities (and taxpayers) alike.

But many foreclosures are avoidable. Given the current scale of the problem, where one in four mortgages are underwater and over a million of foreclosures are predicted for this year, we should be stepping up the pace with implementing policies that can put a stop to the wave of mass foreclosures sweeping the country.

One idea that has shown promise is a reform to the foreclosure process which gets all the interested parties in a room to talk and explore renegotiation. Half the states already have a process in place to facilitate mediation but the process can be made more effective if it is inserted into the process automatically as a default. This approach is working where it has been tried and the next challenge is to get the federal government behind the event.

Alon Cohen and some of his colleagues at the Center for American Progress have been talking up this idea. They note that even though none of the parties are under any obligation to settle in mediation, in practice they settle more than half the time. In previous papers they have explored how foreclosure mediation works and its impacts at the state and local level when it is automatically part of the process.

Alon has just released a new paper describing what the federal government can do to support the spread of this innovative and successful practice. It is an important paper and is worth a read by anyone looking for solutions to the current mortgage mess.

His central proposal is that all mortgages backed by the U.S. government should be forced to go through mediation prior to foreclosure. This means Fannie Mae, Freddie Mac, and FHA will require their loan servicers to implement automatic mediation prior to foreclosure. In this way automatic foreclosure mediation will be added to the list of “loss mitigation” activities already required of them. Further, Congress should make clear that judges in federal bankruptcy cases have the power to require parties to mediate mortgage issues, just as they currently order alternative dispute resolution (such as negotiation or mediation) for other issues. Together, these two provisions would impact the large majority of mortgages under threat of foreclosure and create new means to stabilize the housing market.

One of the big issues left unresolved after the financial reform debate is what to do about Fannie Mae and Freddie Mac. Truth is, the bigger issue is "what to do about homeownership policy in the United States?"

At the end of June, the House of Representatives voted to extend the $8,000 homebuyers' tax credit, by an extraordinary margin of 409-5. The Senate approved the measure on a voice vote. At a polarized political moment, this near unanimity was noteworthy in itself. Conservative Republicans and liberal Democrats, from cities and suburbs and small towns across the country, joined together to shower a bit more taxpayer largesse on one of America's favorite industries: real estate. But there's a problem with this bipartisan idyll.

James Lockhart, Director and Chairman of the Oversight Board at the Federal Housing Finance Agency (the entity overseeing Fannie Mae and Freddie Mac) joined Ellen Seidman to discuss the conservatorship of Fannie and Freddie. The interview followed an event, "Foreclosures: What are Fannie and Freddie Doing to Stem the Tide?" on November 13.