Obama Housing Fix Needs to Go Beyond Housing Reform

NEW YORK ( TheStreet) -- President Obama's speech on housing Tuesday and his discussion with Zillow ( Z) chief Spencer Rascoff on Wednesday have generated a lot of talk about housing reform.

Notably, his call to wind down the government-sponsored enterprises, Fannie Mae ( FNMA) and Freddie Mac ( FMCC), has added fuel to the debate on what the government's role in housing should be.

Outside of GSE reform, Obama also continued his push for more refinancing options and greater clarity on mortgage regulations to increase the availability of mortgage credit. He also highlighted the need for affordable rental housing.

But even if everything on the President's housing agenda gets done -- and that's a tall order, especially where GSE reform is concerned -- it still might not be enough to fix housing.

Credit standards might loosen once there is better clarity on regulations, but it won't loosen by a lot.

New rules require banks to ensure that borrowers have an ability to pay their mortgage. Unfortunately, in this economic environment, a lot of borrowers cannot afford their homes.

The President acknowledged as much in his conversation with Zillow Wednesday. "I think we all recognize that it is still a soft housing market, in part, because it is still a soft unemployment market. The real economy is directly related to the housing market," he said.

And, as TheStreet has pointed out, tight credit isn't the real problem . The fact is, incomes have been growing too slowly to keep pace with the rise in home prices.

Borrowers are struggling to save enough for a downpayment and homeownership, the "quintessential element of the American dream" as President Obama put it, remains elusive.

Too many people have been left behind as home prices have risen, notably young adults, who are still dealing with high unemployment.

The employment rate in the 25 to 34-year old category is 75%, well below the normal pre-bubble rate of 78%-80%. But this is the group that in a normal environment would be out buying their first home.

Even those gainfully employed are choosing to live with their parents, because they can't even afford to rent. That's because they are saddled with thousands of dollars in student debt.

Trulia chief economist Jed Kolko calculates that there are 2.4 million missing households--people who should be renting or buying but choose to live with parents or family instead.

Which is why housing reform alone is not enough. For long-term growth in homeownership, the government will also have to tackle the growing student debt problem.

As Obama noted in the Zillow broadcast, students are emerging from state universities with $25,000 to $30,000 in debt -- money that should have gone towards a downpayment on a home.

The President said the Administration is working with colleges to reduce fees, operate more efficiently and get students to graduate faster, while also working on lowering the interest rates on student loans.

And while Washington solves that problem, it might as well pass immigration reform, the President noted Wednesday.

"If we get immigration done, we will have all kinds of families coming out of the shadows, paying taxes, paying penalties. But we will also see them buying homes, oftentimes in some of the neighborhoods that had the most foreclosures."

The President was not just pumping his voter base.

Immigrants have been a major contributor to household growth in the U.S. According to a report sponsored by the Mortgage Bankers Associations' Research Institute for Housing America published in March, the number of immigrant homeowners has increased from 800,000 in the eighties, to 2.4 million between 2000 and 2010 and is projected to rise further to 2.8 million by 2020.

Immigrants accounted for 82.2% and 65.1%, respectively, of the growth in homeowners in the states of California and New York between 2000 and 2010.

The study found that the longer immigrants are settled, the more likely they are to buy homes. For example, among the cohort of Hispanics who arrived in the U.S. during the 1980s, homeownership rose from above 15% in 1990 to nearly 53% in 2010 and is projected to rise above 61% in 2020.

Uncertainty about legal status tends to deter many young immigrants, including those legally here but waiting for a green card, from buying a home.

So it is not a stretch to say that immigration reform will help housing.

So now we are talking about major reform in three different areas and we are depending upon Congress to get it done.

But that is what makes housing so complex. There are simply too many factors that weigh on one's decision and ability to buy a home.

If the government wants to raise the rate of homeownership in this country, it will have to do more than get banks to loosen credit.

-- Written by Shanthi Bharatwaj in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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