By Mike Colpitts
Elected on a platform of “Change,” President-elect Barack Obama may have a chance of turning around the nation’s economy against mounting odds.
In the early stages of his rise to the White House, Obama announced the development of a two year economic stimulus package designed to save jobs and improve the nation’s economy. Obama’s plan before being elected as the 44th U.S. president called for putting help into the hands of homeowners dealing with foreclosure. The U.S. economic crisis is rooted in the housing market.
Obama’s web site outlines the new administration’s plans to aid the real estate market:
- Create a Universal Mortgage Credit: Obama and Biden will create a 10 percent universal mortgage credit to provide homeowners who do not itemize tax relief. This credit will provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year.
- Ensure More Accountability in the Subprime Mortgage Industry: Obama has been closely monitoring the subprime mortgage situation for years, and introduced comprehensive legislation over a year ago to fight mortgage fraud and protect consumers against abusive lending practices. Obama’s STOP FRAUD Act provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity.
- Mandate Accurate Loan Disclosure: Obama and Biden will create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.
- Close Bankruptcy Loophole for Mortgage Companies: Obama and Biden will work to eliminate the provision that prevents bankruptcy courts from modifying an individual’s mortgage payments. They believe that the subprime mortgage industry, which has engaged in dangerous and sometimes unscrupulous business practices, should not be shielded by outdated federal law.
However, the president-elect has not expressed direct aid for those experiencing foreclosure, a key provision of his fight to right the nation’s economy. Mortgage lenders have increasingly been negotiating with homeowners to work out mortgages in attempt to lessen foreclosures. But without direct aid to halt the epidemic, the crisis will worsen, leading to a worsening economy.
Housing Predictor forecasts another 3.2 million foreclosures through 2011 unless major government interventions are taken to halt the epidemic. According to Senator Chris Dodd, 9,000 foreclosures are taking place each day nationally. Perhaps the only solution to the epidemic is to require lenders to reduce mortgage amounts to halt a worsening downward spiral.
Deflation in real estate and the overall economy has sent financial markets in a tailspin. But after falling last week, the New York Stock Exchange exploded by nearly 500 points Friday on the Dow Jones Industrial average, recognized as the key component of the market’s health.
New York Federal Reserve Bank president Timothy Geithner was named to be the new administration’s Treasury secretary, sending the manic market upward. Harvard University Economist Lawrence Summers will take a leading role in the administration, and could be in position to take Fed Chairman Ben Bernanke’s role when his term expires in 2010.
Obama’s transition team is a nonpartisan entity, which like Obama’s campaign for the White House is being funded by donations, not by lobbying and corporate entities, which appears at least to give the new administration a chance to help the nation without corporate bias. Given the American public’s fed-up attitude with politics and the state of the nation, anything else at this point would be an obvious failure from the start.