He’s not going to have a lot of dollars to throw at the problem. He’ll have an income in recession and ballooning budget deficits.
There will be a call for increased regulation so fewer people are tricked into buying mortgages they can’t afford.
First, the problem must be properly diagnosed. Rampant foreclosures, collapsing housing values, sloppy underwriting and anemic sales are the symptoms of the larger problem during the boom: too much liquidity chasing bad loans in an unaffordable housing market.
The market downturn has zapped liquidity, pushed down home prices and put a stop to poor underwriting — this correction has, in effect, already rid the market of its worst woes.
But foreclosures are the consequence, which is keeping the housing market from finding a balance, as more and more homes are dumped on the market, further pushing down values. And the credit crunch has pushed underwriting standards to the other extreme, limiting the number of qualified borrowers who can purchase the rising number of home listings.
Stemming the number of foreclosures will go a long way to stabilizing the market, which should be the administration’s first step. Clearly, the new president’s first job is swift action on the human misery side of this mess.
With that challenge at the top, here is our to-do list for the next occupant of the Oval Office.
Institutionalize loan modification activity
FDIC head Sheila Bair has been experimenting with controversial programs that facilitate loan modifications, but the program is not scaling fast enough to keep pace with foreclosures. The private market is confronting the upside-down mortgage problem with lenders quietly accepting modification terms brought to them by brokers and lawyers.