Then there is the tried-and-failed attempt to get the Federal Housing Finance Agency- the regulator of Fannie Mae and Freddie Mac- to reduce principal on mortgages backed by the GSEs.
Acting FHFA director Edward DeMarco has remained steadfastly opposed to principal reductions because it will increase losses to the taxpayer, encourage strategic defaults and offer a backdoor bailout to banks who own second liens on the mortgages.
Proponents have argued that principal reductions in the long run will reduce loan defaults and thereby save the taxpayer from future losses.
There has been plenty of speculation that the President will replace DeMarco when Congress is in recess, in much the way he appointed Richard Cordray to the Consumer Financial Protection Bureau. So that is something to watch out for.Of course, there is the $180-bilion question of what to do with bailed out mortgage giants Fannie and Freddie. Both Republicans and Democrats agree that the role of the GSEs needs to reduce, but neither parties have offered a concrete solution. But perhaps Obama could focus on that in the second term. Some analysts contend that Obama will have more freedom to dive into the politically charged issue of mortgage finance and role of government in housing, when he does not face the pressure of being re-elected. On the regulation front, the issue of defining "qualified mortgages" is still stalling credit. Dodd Frank requires banks to ensure borrowers have an ability to pay their mortgage. But the CFPB is still in the process of writing the rule. Defining what constitutes a safe mortgage too tightly might constrain credit. There is also the government's ongoing investigations into banks' mortgage underwriting practice at the height of the boom. New York Attorney General Eric Schneiderman is just getting started as the chair of Obama's mortgage fraud task force set up earlier this year, having recently filed a civil fraud lawsuit against JPMorgan Chase (JPM - Get Report) over alleged mortgage fraud by its Bear Stearns unit. But while there is enough demand on Main Street to see Wall Street "crooks" in jail, the truth is ongoing litigation is weighing heavily on banks' willingness to lend. And well intentioned government programs to reduce principal on loans and protect borrowers from wrongful foreclosures might backfire, as banks and investors may remain conservative if they cannot be confident of protecting their exposure to losses. That's a long list of issues to tackle. The housing market may be mending, but it has done so largely through temporary fixes. Hopefully, in his second term, the President will focus on the long-term. --Written by Shanthi Bharatwaj in New York
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