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A Comparison of the Romney and Obama Housing Plans

A Comparison of the Romney and Obama Housing Plans

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We spoke to FOX25 Morning News today to explain why no matter which candidate wins in November, the real estate market will not significantly change after the election, so home buyers should not wait to buy a home or put their home on the market. The biggest drivers in the real estate market right now are the low inventory levels and the low interest rates so regardless of who wins the election, these factors won’t change for some time.

Watch Video:


John and Anthony Discuss How the Election Affects the Real Estate Market

We believe there are issues that both candidates need to address concerning the future of the housing market which they don’t mention in either of their housing plans.

Both President Obama and Republican nominee Mitt Romney have released their plans to revitalize the housing market yet many of their proposals sound similar. For instance, both Obama and Romney cite reforming the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac in their housing plans, though neither candidate will specify how to restructure the housing finance system.

Romney’s plan states that one of the best ways to improve the housing market is to get more people back to work. He says a return to less complex lending standards would produce an estimated 640,000 more home sales and 320,000 jobs next year. In contrast, Obama’s plan puts an emphasis on homeowners taking advantage of historic low interest rates and refinancing their homes, enabling them to save thousands of dollars.

Here’s a summary of both candidate’s plans, and which policies are missing from both.

The Romney Housing Plan:

In his whitepaper released last month, Securing the American Dream and the Future of Housing Policy, Romney outlines his plans for ending the housing crisis and revitalizing the private sector’s role in the housing market. The Romney plan calls for selling off vacant homes owned by the government, helping troubled homeowners avoid foreclosure, streamlining regulations, and reforming the government-owned finance companies Fannie Mae and Freddie Mac.

Romney’s alternatives to foreclosure include making it easier for struggling homeowners to do short sales and deeds-in-lieu of foreclosure. In his plan he also mentions his administration would make it easier for struggling homeowners to get shared appreciation modifications, which are when the lender agrees to write down the principal of a mortgage and then get a percentage of the price increase when the home is sold. This allows a homeowner to pay less on the mortgage, and the lender benefits from the home appreciation in the future.

Another way Romney intends to improve the market is to sell vacant properties owned by the government. According to his plan vacant properties reduce the selling prices of nearby homes by $8,600 to $17,000 per property. Returning the homes back to private hands will help improve home values and benefit neighborhoods.

Romney’s housing plan also calls for replacing the Dodd-Frank Act with simpler, more sensible regulation.  He says Dodd-Frank did nothing to reform the GSEs and in fact hurts homeownership. The white paper says Dodd-Frank is too complex and that the burden of the lengthy regulation falls on smaller banks that don’t have the same resources as large banks. Romney says this is causing these banks to reject mortgage applications for families with good credit.

The Romney plan intends to revitalize the role of the private sector in the housing market, while significantly reducing the government’s role.

The Obama Housing Plan:

At the top of Obama’s plan for a housing recovery is what he calls Broad Based Refinancing for borrowers who are current on their payments to refinance their homes. The plan will establish streamlined requirements such as no longer having to submit a new appraisal or tax return when applying for the refinance program. The plan aims to reduce delays in applications that prevent borrowers from benefitting from the low mortgage rates and would be paid for by a financial fee so as not to add to the deficit.

While Romney’s Plan proposes to sell vacant foreclosed homes, the Obama Housing Plan proposes to transition foreclosed property into rental housing to help stabilize neighborhoods and improve home prices.

For borrowers facing foreclosure, the Obama Plan will press mortgage lenders to increase the forbearance period from 4 months under the Federal Housing Administration (FHA) and 3 months under the Home Affordable Modification Program (HAMP) to 12 months for homeowners who have lost their jobs.

Putting Americans back to work is also part of Obama’s Housing Plan. This time the jobs created will be tied directly to housing, as the plan will invest $15 billion into rehabilitating and refurbishing hundreds of thousands of vacant and foreclosed homes and businesses. This program, Project Rebuild, brings in capital from the private sector, provides funding to purchase, rehabilitate, and redevelop foreclosed, abandoned, demolished, or vacant properties.

Obama will also expand HAMP eligibility to try and reduce additional foreclosures.  The plan calls for tripling incentives provided to encourage the reduction of principal for underwater borrowers. To encourage the GSEs to offer this assistance to its underwater borrowers, Treasury has notified the GSE’s regulator, Federal Housing Finance Agency (FHFA), that it will pay principal reduction incentives to Fannie Mae or Freddie Mac if they allow servicers to forgive principal in conjunction with a HAMP modification.

What’s Missing from These Housing Plans

Extend the Mortgage Relief Act

Neither of these plans mentions the extension of the 2007 Mortgage Relief Act, which is set to expire at the end of the year. This Act relieves distressed homeowners from having to pay federal taxes on the amount of debt that was forgiven in a refinance or loan modification, short sale, or foreclosure. In Obama’s budget proposal for 2013, he did call for an extension of this Act through January 1, 2015, but the clock is ticking. This needs to be mentioned as part of an overall housing plan that protects struggling homeowners facing foreclosure.

Preserving the Mortgage Interest Deduction

The Mortgage Interest Deduction is not mentioned in either plan and should be protected as an incentive for homeownership. The Mortgage Interest Deduction has been a part of the federal tax code for almost a hundred years. It saves families an average of more than $3,000 a year, money that is often spent on living expenses, home improvements, and other items that actually help stimulate the economy.

Obama’s 2013 Budget includes plans to limit the mortgage interest deduction for families with incomes over $250,000. Romney hinted that he may reduce the mortgage interest deductions in an effort to pay for his 20% across the board tax cuts. A sound Housing Plan from either candidate should include protecting the Mortgage Interest Deduction.

Bush Tax Cut Extension

Also not mentioned in either plan is how the Bush Tax Cuts affect homeowners or plans to extend them beyond the end of this year.  Homeowners who live in a home as their primary residence for at least 2 years can exclude the gain on their income up to a limit of $250,000, or $500,000 if the couple files jointly. But for those who own investment property, the capital gains tax will increase. Right now if you are in the lowest two income tax brackets of 10 or 15 percent, the long-term gains are tax free. But if next year the tax cuts expire, the 10 percent bracket will collapse into the 15 percent bracket, and taxes for this bracket will go from 0 to 10 percent. For property owners in the income brackets above 15 percent, the long term capital gains tax will increase to 20 percent. These Tax Cuts should also be part of the conversation for improving the housing market.

The Payroll Tax Cut Hurts Homeowners

With all the talk of tax cuts we don’t want to see homeowners footing the bill for cuts at a time when we should support homeownership. In December of last year, President Obama signed the Payroll Tax Cut extension, but the problem is homeowners are paying Fannie Mae and Freddie Mac to pay to Treasury for the tax credit. The fees Fannie Mae and Freddie Mac charge to insure home mortgages increased to from 0.3 percent to 0.4 percent. For a homeowner with a $200,000 mortgage, that means their monthly mortgage payment would be about $17 higher or an additional $6,000 over the course of a 30-year loan. Homeowners with bigger mortgages pay more.

We should not take money out of people’s mortgages to pay for other government debts like the payroll tax law last year.  That law was bad for housing and makes no sense.

Keeping Fannie Mae and Freddie Mac

And lastly, both candidates say that Fannie Mae and Freddie Mac should be reformed or replaced but the fact is they have already been reformed.  After the housing bubble burst, Fannie Mae and Freddie Mac were placed into conservatorships in September 2008 and have since received $188 billion in taxpayer support. But they have already started to pay back the debt and are making money again. In August, Fannie Mae reported a net income of $5.1 Billion for the Second Quarter, and Freddie Mac reported a net income of $3 billion for the same time period. Fannie and Freddie have repaid about $46 billion to the Treasury in dividends and have not had to draw on Treasury funds for the second quarter of 2012. The current lending policies for Fannie Mae and Freddie Mac mortgages are sound. People need good credit and require a down payment to get a mortgage. Over time Fannie and Freddie will pay back their debt to taxpayers. With them banks can offer home loans to low- and middle-income buyers who otherwise might not have been able to get a mortgage. But without them, mortgages would be more expensive for everyone.

Conclusion:

Both the Obama and Romney housing plans focus mainly on helping distressed homeowners, which is great.  But they need to focus more on preventing people from becoming distressed homeowners and supporting the larger portion of homeowners who are the people who CAN afford their homes.

The market has been improving all year and it is great to see that it has finally hit bottom. We need to do everything to be sure that this continues.









 

1 Comment

  1. This information is helpful, but both Romney & Obama have not addressed how to assist 1st time homeowners, who accepted the first LOAN amount of $7,500, which is due immediately if their home is rented because it hasn’t sold in over a year. (This includes dramatic price reductions below the current mortgage principal and interest.) Due to job relocation, these types of homeowners are forced into foreclosure, partly due to the big name banks not willing to work with these homeowners, whose credit had been excellent. The money would not have been borrowed, if it wasn’t absolutely necessary at the time of purchase, nor did the housing market show any signs that the economy, and jobs would decline severely in that city. These candidates talk about putting renters in these homes, but do not propose assistance to allow the homeowner to rent the property, which would have paid the mortgage, and prevented foreclosure. Individuals who have been put in this situation have had no recourse except to accept foreclosure. Their current jobs do not pay enough to cover rent at a new location, the previous mortgage, taxes, insurance, college loans, and food on the table. It’s a very painful experience for these first time homeowners, and their families. Assistance is needed now, not after the election.