There is a general belief that in some ways, the economy cannot recover until the mortgage crisis is solved.
In addition to high unemployment and underemployment rates, millions of homeowners are facing excessively high monthly payments compared with the property’s real value, and the threats of foreclosure and loss of their homes. This process has been drowning every attempt to stimulate the economy, whether through low interest rates or other macroeconomic policies.
The Obama administration’s initial proposals did not yield the expected results. The guidelines themselves were not clear and there weren’t enough incentives to encourage banks to participate.
Therefore, we welcome the White House’s new proposals, which have a more comprehensive focus and take into account the different situations homeowners face-including those who are underwater, late with monthly payments or have already lost their homes.
So far, it all sounds good. The problem is that the proposal’s centerpiece, which will allow a reduction of up to $3,000 per year for homeowners who are current on their loan payments, must be approved by a House of Representatives that is reluctant to accept the White House’s ideas.
Republicans oppose Obama’s proposal, which according to the president, will be financed by a fee charged to the financial industry. But they are mainly criticizing federal intervention in this crisis and, remaining faithful to market theory, believe the country must hit bottom so recovery can begin.
We think the situation warrants action to help millions of homeowners who are in trouble, instead of passively watching them drown and then waiting for a natural recovery.
It is inevitable to ask why it took so long to present this proposal and take action on its measures, especially those that only require executive orders or internal changes without the need for congressional approval.
It is not a coincidence that this more aggressive strategy to defend homeowners is being presented in a re-election year. However, the political season must not invalidate valid proposals, and there is nothing wrong with clearly highlighting to voters the differences between Republicans and Democrats on such an important issue.
In summary, the White House’s proposal is fine and will help many people, but it doesn’t get to the heart of the matter, which is reducing mortgage principals. There are pending lawsuits and unresolved investigations of banks whose consequences are unpredictable today.
What is certain is that it will be very hard to overcome the crisis without mortgage modifications, which are not included in Obama’s proposal, and would give the properties their real value.