Caterina and Gonzalez: Resetting underwater mortgages
By Jean-Marie Caterina and Jose Gonzalez May 1, 2013 8:34PM
U.S. Rep. Mel Watt, D-N.C., listens as President Barack Obama announces Watt as his nominee for the Federal Housing Finance Authority director, May 1, 2013, in the State Dining Room of the White House in Washington, D.C. (AP Photo/Jacquelyn Martin)
Updated: June 3, 2013 6:04AM
Business groups with an ax to grind against the Obama administration, such as the U.S. Chamber of Commerce and the National Federation of Independent Business, like to push the idea that “uncertainty” over government actions is the monkey on the economy’s back.
As small-business owners who work in the housing sector, we don’t buy that analysis. The source of our continuing economic problems is not some vague cloud of “uncertainty.”
It is, quite the opposite, the very real certainty that if we don’t do more, and soon, to hit the reset button for the housing sector, the economic recovery will continue to fall short of what we need to put millions of unemployed Americans back to work.
Almost five years after the financial crisis rocked our economy, we still haven’t done anything to address one of the key drivers of the crisis — the divorced-from-reality overpricing of homes and mortgages during the housing bubble.
Since the bubble burst, nothing has been done to correct the pricing distortions that were written into mortgage contracts. The result? Fourteen million Americans are underwater in their homes.
This isn’t just holding back the housing sector. A weak housing sector drags the whole economy down.
When consumers are stuck shipping inflated mortgage payments off to Wall Street accounts every month, that drains consumer purchasing power and weakens local economies.
A scientific survey of small-business owners nationwide commissioned last year by three business networks bears this out. In that survey, 73 percent of small-business owners said the drop in consumer demand as a result of the housing and mortgage crisis has hurt their businesses (28 percent said it has hurt a great deal).
There is, of course, a solution — reset underwater mortgages to fair market value.
That will boost the housing sector, bolster consumer spending and restore the dream of home ownership for millions of Americans who have been living an underwater nightmare for the last five years.
Why haven’t we implemented this simple solution? There’s a simple answer — Edward DeMarco.
As acting director of the Federal Housing Finance Agency since 2009, DeMarco has overseen the government-sponsored mortgage financiers Fannie Mae and Freddie Mac, which own or guarantee about half of all outstanding U.S. home mortgages. And in that capacity, he blocked all efforts at resetting underwater mortgages.
Despite clear evidence that writing down underwater mortgages to fair market value would be good not only for homeowners but also for Fannie, Freddie and U.S. taxpayers, DeMarco rejected all efforts to move this solution forward.
Remember how, on the campaign trail, President Obama often used the metaphor of driving a car to make his case for why he (and Democrats) should be re-elected?
“Why would we give the keys back to the same people who drove the economy into the ditch in the first place?” was the gist of his appeal.
Well, he had a guy driving his administration’s housing policy who, instead of turning the key and stepping on the gas to get the car out of the ditch, seemed more intent on slashing the tires.
But now there’s hope for the Obama administration to push for real relief on underwater mortgages. The president on Wednesday nominated U.S. Rep. Mel Watt (D-N.C.) to replace DeMarco, saying Watt has served on the House Financial Services Committee for 20 years and “understands as well as anybody what caused the housing crisis.”
As small-business owners and real estate agents, we hope Watt will do what’s right for homeowners, small businesses and the economy by resetting mortgages to fair market value.
Caterina is a real estate broker in Scarborough, Maine, and a member of the Maine Small Business Coalition. Gonzalez is principal broker at Tu Casa Real Estate in Salem, Ore., and a member of the Main Street Alliance of Oregon small-business network.