Pete the Banker: The President Has Done Next to Nothing to Fix the "Failed Policies of the Past"

President Obama likes to talk a lot about how we can't go back to the "failed policies" that brought us to the brink of a economic meltdown. But has the President done anything to stop those "failed policies" in the housing finance industry--where the whole mess started?

No.

In fact, the state of the housing finance industry remains unchanged, if not worse, since this Administration took office. Their only accomplishment on the subject is to have the Treasury Department issue the White Paper (referenced below) over two years after they took office which recommended three alternatives all of which specified less government involvement in financing residential real estate.  As this article suggests, the Republican House responded with various pieces of legislation to implement, all of which found resistance by the Administration and died in the Democrat Senate.

If Obama would discuss policy, it would be interesting what excuse he would use to explain lack of initiative on Fannie Mae, Freddie Mac and the Residential Capital Markets. 

In the intervening period, the residential mortgage market has dwindled to roughly half the volume present in 2007 and virtually all financing has been done by either the former GSE’s and the FHA at taxpayer expense.   As a result, despite the glowing recent reports in the press,  residential sales remain depressed and particularly those residential purchases by homeowners, rather the investors, who require financing.  (See the two charts nearby)

It is nice to hear that the Romney team is addressing this long term problem which has received scant attention from Obama, and little real analysis from the Mass Media!

Here's what VP nominee Paul Ryan got passed in the House (but died in Harry Reid's Senate):

The long-term outlook of the Ryan plan involves a complete wind-down of Fannie Mae and Freddie Mac and an end to the $188 billion in bailouts so far.
The Ryan budget would "privatize the business of government-owned housing giants, Fannie Mae and Freddie Mac, so they no longer expose taxpayers to trillions of dollars' worth of risk."

Ryan's rationale is that the game has changed since the housing meltdown:

"Taxpayers' exposure to Fannie and Freddie, once an implicit guarantee, has now become an explicit obligation to cover its debts," Ryan wrote in his plan. "The housing-finance system of the future will allow private-market secondary lenders to fairly, freely and transparently compete, with the knowledge that they will ultimately bear appropriate risk for the loans they guarantee. Their viability and profitability will be determined, not by political favoritism, but by the soundness of their practices and the value of their services."

Many in the industry, feel a completely private system – one that hasn't existed since Fannie was chartered in 1938 – would be unlikely to ever arrive.”

Even one of the Obama Administration suggestions was to go to a fully privatized mortgage market:

“The Obama administration released three options last year Congress could pursue, which includes various degrees of government support to the future mortgage market, including a completely private option. But that was where the process stopped outside of roughly 15 bills passed by the House, each largely duplicative of the conservatorship agreements.

Please note that sales are not only still near the bottom of the cycle but dramatically lower than 2006 and even far below June 2009 levels, 6 months after Obama took office.  This despite the near euphoria in the Press over the Spring numbers.

Curiously even the White Paper issued by the Administration had to await the first quarter of 2011 for issuance, given other Administration priorities.