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CNBC Guest Blog
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Foreclosures — Fair and Foul
Tony Fratto
Former White House Spokesman
Somewhere out there is an American family struggling to make its mortgage payments.
The owners are probably working two jobs and cutting out the things they can't afford — no vacations, no private schools, no big screen TVs.
They try to save a little, and they pay their taxes. The value of their house is likely "underwater", but that's OK, because they like the neighborhood and the schools and they plan to stay in their home for a long time, at least long enough for home values to recover.
Down the street a neighbor took advantage of cheap credit and lax lending standards to buy a house well outside his means — maybe with an interest-only loan, and maybe by never having to prove his income. He bet that property values would continue their skyrocketing assent, and he could "flip" the house with a tidy profit before the financial math caught up with him.
Now his house is underwater, too — and the financial arithmetic has caught up to him well before he expected it.
Who do you help?
That's the ultimate and inescapable political question facing the Obama administration when it unveils the latest federal foreclosure mitigation program on Wednesday.
President Obama and his advisers have said that their plan to stem foreclosures and put a floor on home prices will be "fair".
The reality is that if you intend to limit foreclosures, there is no fair way to do it. Any solution with federal support means we're taking tax dollars of responsible, but struggling, home owners and subsidizing the bad bets of the irresponsible home owners (and their lenders).
There is nothing fair about that.
Over the past 18 months, as policy makers have searched for solutions to the housing crisis, this has always been the most vexing problem: who deserves government help?
That's where the political problem runs smack into the economic problem.
The U.S. economy will not return to sustainable growth until the housing correction runs its course. If you set a macroeconomic policy goal of reversing the slide in housing, you need to deal with an enormous number of homes. If you limit federal help only to "deserving" home owners, the numbers are just far too small to have much of a macroeconomic impact. Once you weed out condo speculators, vacation homes, and home owners with incomes far too small to be reasonably helped, the number of "deserving" home owners dwindles.
And if you offer assistance to a population of troubled home owners large enough to have an impact in the huge housing sector, it becomes impossible not to capture "undeserving" bad actors.
For the Obama administration, the political-economic calculus becomes foul. In the Bush administration, we took withering criticism for not doing enough to stem the flood of foreclosures.
The Obama Administration could hear howls of protest for trying to do too much.
_________________________
Tony Fratto
Former White House Spokesman
Tony Fratto is a CNBC on-air contributor and most recently served as Deputy Assistant to the President and Deputy Press Secretary for the Bush Administration.
Data is a real-time snapshot *Data is delayed at least 15 minutes
