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More Housing Policy

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Today Freddie Mac announced it is extending the period for forbearance for unemployed borrowers. That is probably just the beginning of a series of policy announcements. Three Fed officials discussed some possibilities today (see WSJ article below), and some sort of REO to rental program seems likely. The revamped HARP for refinancing is just ramping up. Also the servicer mortgage settlement will probably be announced in the next month or so. It will be a busy month or two for housing policy.

• From Freddie Mac: Freddie Mac Now Permits Up To 12 Months Forbearance To Unemployed Borrowers

Freddie Mac today announced it is giving mortgage servicers expanded authority to provide six months of forbearance to unemployed borrowers without Freddie Mac’s prior approval and up to an additional six months with prior approval.

• From the WSJ: Three Fed Officials Urge Action to Boost Housing

Top Federal Reserve officials ramped up their call for more forceful government action to fix the broken housing market … “The ongoing weakness in housing has made it more difficult to achieve a vigorous economic recovery,” William Dudley, president of the New York Fed, told a bankers’ group in Iselin, N.J. “With additional housing policy interventions, we could achieve a better set of economic outcomes.”

• From NY Fed President William Dudley: Housing and the Economic Recovery

Even with aggressive policies to minimize the flow of loans into foreclosure, my staff estimates that large volumes of properties would still flow into lenders’ REO over the next few years. This growing overhang could continue to depress prices.

Thus, along with more incentives to promote short sales, steps should be taken to facilitate the timely and orderly absorption of these properties back into the market including as renter-occupied housing. An interagency group including the Federal Reserve is working on issues relating to REO-to-rental conversions. Appropriate policies would simultaneously lessen downward pressure on home prices and upward pressure on rents.

Among other steps, investors could be encouraged to purchase REO to be made available as rental housing. Fannie Mae and Freddie Mac could increase the number of loans offered to individual investors, provided the investor puts up an adequate amount of equity for each mortgage. And REO properties in a given locality could be bundled for sale.

The government might consider a package of tax incentives for purchases of REO that are used as rental properties. Such incentives might include a reduction of the current 27½ year depreciation period and/or a reduction of capital gains tax liability if the property is held for a minimum period, such as five years.

One idea developed by my staff—let’s call it “homes for heros”—would be to create a new tax credit or other home purchase subsidy specifically for veterans of our foreign wars that would enable these veterans to purchase such properties at a discount. There are over 2½ million Gulf War II veterans alone, many of whom served multiple tours of duty overseas, and a significant proportion of them might otherwise not be able to purchase homes today.

Here are the earlier employment posts:
• December Employment Report: 200,000 Jobs, 8.5% Unemployment Rate
• Employment Summary, Part Time Workers, and Unemployed over 26 Weeks
• Seasonal Retail Hiring, Duration of Unemployment, Unemployment by Education and Diffusion Indexes
• Employment graph gallery




Calculated Risk

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