Between the U.S. debt-ceiling debate, Europe's ongoing debt crisis and a torrent of earnings, it's shaping up to be a very busy week, especially for late July. As if that weren't enough, this week brings more data on what's arguably the epicenter of the world's economic problems: U.S. housing.
Ahead of Tuesday's housing starts and Wednesday's existing home sales data, I spoke to RealtyTrac's Rick Sharga about the state of the housing market and whether there's anything the government could — or should — do to revive the market. (See: Foreclosures Down 29%, But It's No Time to Celebrate: RealtyTrac's Sharga)
"Government intervention in housing market to date has not exactly been a shining success story," Sharga says with a chuckle.
President Obama admitted as much in his historic Twitter town hall meeting earlier this month when he said (or Tweeted) "the housing market…hasn't bottomed out as quickly as we expected" and the efforts thus far were "not enough" to help struggling homeowners.
There are a few things the government can do, Sharga says. Perhaps most importantly, Uncle Sam must take the Hippocratic oath to "do no harm."
Anything that would be an "impediment" to financing such as eliminating the tax deduction for mortgage interest payments "should be stricken from the discussion," he says. "The last thing we want to do with a patient in critical condition is unplug some of the tubes."
Similarly, the government should abandon talk of a moratorium on foreclosures, Sharga says, arguing such a policy would only help a small number of homeowners who are ultimately likely to default anyway. A foreclosure moratorium would also further delay the recovery and "eliminate lending," he argues. "No lender unable to recapture losses via foreclosure will write a mortgage loan, especially in a market where prices continue to fall, which would be a likely side-effect."
In addition, Sharga recommends revisiting new regulations in the Dodd-Frank legislation that he says "run the risk of making it more difficult [and] more expensive for the average American to get a mortgage." (In a separate but related development, Sharga says many lenders are waiting for a final settlement with the states over the robo-signing scandal, which is "gumming up the works in terms of foreclosures and lending in general.")
Other than "programs to stimulate job growth," about the only proactive step Sharga recommends is for the government to "exert influence" over lenders to create some principle balance reduction. Such "creative financing" programs can give homeowners currently upside down on a mortgage help and incentive to stay current, he says.
Obama referenced this in the Twitter town hall, saying: "We are going back to the drawing board to put more pressure on banks to see if we can help more homeowners through modification and see where reducing principal is possible."
But unless something has changed drastically in the past 6 months, principal balance reductions are much easier said than done as they require the cooperation of servicers and MBS investors, as well as the loan originators. Unless, of course, we let bankruptcy judges decide these cases, an idea even more politically charged than the "simple" issue of government-mandated mortgage modifications.