Obama: ‘What we need is a floor in the housing market’
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It didn’t receive much notice, but Democratic presidential candidate Barack Obama (pictured) committed some news over the weekend when he told NBC News’ Tom Brokaw, ‘What we need is a floor in the housing market, a, a stop to the decline in housing values.’ (Read the entire Obama-Brokaw exchange about housing at the bottom of this post.)
In some circles of Washington, and particularly the Democratic Party, this is not a controversial idea: that the government’s goal right now should be to stop the decline in housing prices. But here in Los Angeles -- where housing prices remain high relative to income, and home ownership levels remain low relative to the rest of the country -- there are many who believe the government should stand back and let the market determine housing prices.
Example: The reader who calls himself ‘Home prices need to get lower,’ who wrote here earlier today, ‘My ray of hope is that home prices will continue to slide and housing will become affordable again.’ Another example: Reader ‘Manny,’ who wrote here today that he makes $90,000 and can’t afford a decent house: ‘The markets are still not affordable. I hope more correction is on the way.’
Will the new housing bill succeed in doing what Obama says is necessary? It’s doubtful. Analyzing the bill this spring, the Congressional Budget Office predicted the housing rescue package would prevent some foreclosures but would not stop the historic decline in housing prices.
I eagerly anticipate hearing from the Obamatons on this one. Please try to stay on topic: Obama’s belief that the government needs to put a floor under housing prices.
Continue reading for the entire exchange between Obama and Brokaw about federal housing policy.
BROKAW: Let me ask you a question about housing. A lot of attention this past week to federal aid for Fannie Mae and Freddie Mac, the two government quasi-agencies that got themselves in real trouble. Banks have gotten in trouble. There’s now a housing bill out there to take care of people whose homes are being foreclosed.
OBAMA: Right.
BROKAW: This is not as cold-blooded as it sounds, but I hear a lot of people around this country saying, ‘Look, I did the right thing.’
OBAMA: Right.
BROKAW: ‘I, I got a prudent mortgage,’ or I hear a lender saying, you know, ‘I wouldn’t have gotten involved in one of those things.’ Why should they bail out people, many of whom were simply speculating? Or the lenders who were taking the fees and doing loans that they knew that would not be being paid back and walking away? Why should the hard-working taxpayer in this kind of an economy have to bail those people out?
OBAMA: They shouldn’t, which is why a couple of points that I’ve made. Any assistance to Fannie Mae or Freddie Mac should not be focused on the investors and the shareholders. It should not be focused on management. It should be focused on making sure that we’ve got liquidity in the housing market. And there are ways of making sure that we are not giving a windfall to investors who were enjoying the upside all these years of Fannie Mae and Freddie Mac, extremely profitable partly because there was this implied federal guarantee. Well, if they enjoyed all that upside, they should enjoy some downside as well.
BROKAW: Why not just reconstitute them as pure government agencies and take them out of the private sector?
OBAMA: Well, I--you know, I think that part of what we have to recognize is they’ve got $5 trillion worth of, worth of mortgages out there, and we’ve got to make some decisions in terms of whether or not we want to take that -- those liabilities onto the federal balance sheet. So there are, there are a host of complicated issues here. It is true that there may be some folks who didn’t make the best decision that will still benefit from the home foreclosure plans that have been put forward. But keep in mind that many of these folks were not so much speculators as they were probably in over their heads. They tried to get more house than they could afford because they were told by these mortgage brokers that they could afford it. We are better off helping them stay in their home if you can fix the mortgage and let them pay it off over time than have them foreclose, in which not only do they lose their home, not only do the lenders lose a lot, but that community suddenly sees its property values going down. And what we need is a floor in the housing market, a, a stop to the decline in housing values, as well as some certainty on the part of lenders in terms of what houses are worth so that we can start restoring confidence in the housing market, but also confidence in the financial markets where credit has been contracting. And that’s affecting a lot of terrific businesses and good sound developments and entrepreneurial opportunities because they just can’t get good credit.
-- Peter Viles
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Photo Credit: L.A. Times