Real Estate Under the Obama Administration
As the Democratic Convention is this week, we’re studying President Obama’s handling of the country’s real estate industry. Some legislation and programs generated under this administration have been more publicized than others (though even popular programs deserve further study, so we’ll return to them in a later blog). Today, we explore Obama’s four-year record for both well known and lesser known attempts to aid America’s housing market, examining their purpose, their function, and their current impact on the economy.
Through the Years
First-Time Buyer tax Credit
Americans buying their first home between April 9, 2008 and July 1, 2009 were eligible for $7,500 federal tax credit. An extension allowed new buyers to claim up to an $8,000 tax credit through 2009, and existing homeowners to buy a new primary residence. The tax credit worked basically an interest-free government loan of 10% of the home’s purchase price to help defer costs. Taxpayers would then repay the credit over the subsequent 15 years of tax returns, interest free.
Status: Now expired, this tax credit added hundreds of thousands of new home owners to the American landscape. A 2010 National Association of Realtors® survey showed the second most popular reason for first-time buyers buying a home that year, (the first being “I want to own my own home”) was because of the Obama tax credit. Certainly, there was both a striking rise in home sales while the credit was in place, and a corresponding dip in sales when the credit expired.
HARP was a federal program intended to help 5 million underwater or near-underwater homeowners refinance into a fixed loan with a lower monthly payment. But in its first version, the program had many difficult obstacles that stopped the majority of such homeowners from using it.
Status: In October of 2011, President Obama announced an overhaul of HARP program, dubbing the expanded version HARP 2.0. We’ll explore HARP 2.0 in a future blog, but as of 2011 and 2012, new aspects of this revised (and more reasonable) version of the program have been introduced to help struggling homeowners.
Wall Street Reform/Financial Reform
Obama signed the Dodd-Frank Bill in 2010 seeking to provide oversight and regulation of the industry most blamed for the country’s economic collapse. The law was passed in effort to make US financial systems more accountable and responsible with taxpayer money, and to avoid another economic crisis. The bill established a Consumer Financial Protection Bureau and Financial Stability Oversight Council, set limits on large financial corporations, required more transparency and oversight in the derivative market and of credit rating agencies. Now, shareholders would have a vote on major monetary decisions such as investment of profits and allocation of bonuses.
Status: Many parts of the Dodd-Frank Bill have already changed the credit industry which is limited in how much interest it can charge cardholders. However, some parts of the bill haven’t made much impact on this industry, largely due to differing interpretations of the bill in the Senate and House. Also, these legislative bodies included language that potentially defeats the purpose of some aspects of bill- for instance, both Congress and the Senate produced reform bills that include the Volcker clause, prohibiting proprietary trading by banks, but both have a caveat which allow for regulators to overrule this clause.
The “America Invents Act”
This act too has real estate implications. Though for the most part, it’s a law focused on keeping the U.S. patent system attractive to global companies by modifying complicated processed and fee structures, the third tier of the Act seeks to make patents of a higher quality, thus limiting patent infringement lawsuits—and thus of direct importance to real estate. As the National Association of Realtors® puts it, “A number of REALTOR® associations and MLSs have been hit with patent infringement lawsuits in recent years, and this law aims to reduce the number and cost of these lawsuits.”
Status: Obama signed this Act into law in 2011. Still, to again quote the NAR, “It will be years before we know whether the patent changes will have their intended effect and no doubt the law will be tweaked in the years ahead, but what’s clear is that lawmakers understand that the U.S. system needed modernization.”
Mortgage Industry Reform
Also under the Obama Administration, the Consumer Financial Protection Bureau (CFPB—an agency created under the Dodd-Frank bill-- began overhauling the mortgage servicing industry. “For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress," said CFPB Director Richard Cordray.
The CFPB proposed a set of rules aimed at making the industry more transparent and holding servicers more accountable. This is in response to an investigation, conducted under the Obama administration, of unethical foreclosure procedures such as robo-signing and similar under-handed practices, the discovery of which led to a multi-billion dollar judgment against some of the county’s most established banks.
As part of the reform, the CFPB proposed that if homeowners face foreclosure, lenders must first make a "good faith" effort to contact the borrower, explain the foreclosure process, and provide counseling options.
Status: This reform is up and running in many states, where local agencies require this “good faith” effort before allowing lenders to begin foreclosure procedures. Other parts of the CFPB’s efforts should become more apparent by early 2013.
Of late, we’ve had good news, nationally, when it comes to real estate: sales up, prices up, bidding wars and low interest rates making the market serve both buyers and sellers.
We’re curious then about reader opinion on the Obama Administration’s efforts to stimulate, regulate, and re-energize America’s real estate industry. Is he to be commended for his efforts? Has he done enough? Can he do enough with contrary legislative bodies? What suggestions do you have to help the industry continue to improve in the coming years?
Next in this Series:
- HARP 2.0: Do You Qualify?
Photo of President Obama credit: Creative Commons Attribution 3.0 License/Obama-Biden Transition project.
Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert.