By Mike Colpitts
Facing stiff political opposition, rising protests over government bail-outs and growing anger President Barack Obama delivered his first State of the Union Address without mentioning the foreclosure crisis. But he spent plenty of time addressing the financial crisis, reining in excessive risk taking on Wall Street and lots of other topics.
His Democratic predecessor in the Oval Office, President Bill Clinton says each and every foreclosure costs the U.S. economy an average of $250,000. Perhaps the controversy that brews over the topic is too hot for Obama to take on in light of growing emotions over the troubled nation.
“The steps we took last year to shore up the housing market have allowed millions of Americans to take out new loans and save an average of $1,500 (annually) on mortgage payments,” Obama said during the annual speech. “This year we will set-up refinancing so homeowners can move into more affordable mortgages.”
Obama’s Hope for Homeowners program to aid borrower’s with mortgages of less than $550,440 is showing clear signs of failure. The massive decline in home prices has left more than 18-million homeowners under water on their mortgages, and many are fleeing their homes in exchange for stronger personal economic stability.
The White House faces an uphill battle in terms of economic policy, trying to design a program to stabilize the housing market without changing fundamental reactions related to mortgages. Should Obama and the Treasury Department with the Fed force bankers to reduce the size of mortgage principal, the step could be taken as unfair by other mortgage holders, who fearing a further collapse in the housing market might stop making mortgage payments in greater numbers.
The move could trigger an economic calamity of major proportions and send the U.S. economy reeling to the brink of an economic depression. The president’s Home Affordable Modification Program (HAMP) has helped slightly less than 10,000 underwater borrowers slash the amount of principal on loans.
The White House is feeling heat from last week’s Democratic Senate election seat loss in Massachusetts, viewed as opposition to Obama’s move towards bigger government through financial engineering, and is striving to adopt policies that will get Congress to adopt Health Care Reform.
The financial crisis is rooted in the housing market, which is projected to see more than 3.5-million foreclosures this year. Nearly $1-trillion in Option ARM mortgages are resetting in 2010, unleashing a massive volume of mortgages that need to be refinanced. With housing values dropping in most places refinancing won’t be an option without additional assistance from bankers or the government.
The resulting volume of foreclosures and short sales will pressure housing prices except in the best of markets, where employment is growing and regional economies are starting to stabilize.
Silver-linings are difficult to find in the nation’s housing crisis. “There are devastated neighborhoods all across the country,” said Rep. Maxine Waters, (D, Calif.), who leads a task force providing aid to states, city, county governments and non-profits to purchase foreclosures and abandoned properties.
At the height of the Great Depression President Franklin Delano Roosevelt did plenty of unpopular things with the voting public, and was still elected to a record three terms. Obama still wins the popularity vote. Now he needs to force bankers “to do the right thing,” reducing mortgages to keep roofs over Americans heads.