[See a collection of political cartoons on the economy.]
Now, while a massive housing recession was destined to happen with or without the Modification Program or Refinance Program, it's clear that these programs have helped ease the pain of millions of homeowners caught in this wrenching process and have done so in a relatively tax revenue-neutral way. Personally, while I believe that without the Modification Program and the Refinance Program we would have had more foreclosures, I also believe that the investor dynamic would have been commensurately larger. For each additional foreclosure, there would have been another sale to an investor looking to chase rental demand freshly augmented by one additional newly minted renting household that formerly owned a home. From a strictly economic perspective, the outcome for home values of foreclosing on that homeowner might actually have been similar to the outcome had we prevented the foreclosure. But the consequences for that family and our social fabric overall would not have been the same in these two scenarios and, thus, I believe we did the right thing by helping families stay in their homes when reasonably possible. Calling this effort a failure is like saying it's a bad idea to call the paramedics to the scene of a car crash. Sure you can no longer prevent the crash, but it's definitely possible to help some people at the scene.
Importantly, I don't believe that the absence of these programs would have brought about a quicker end to the housing recession.
It should be pointed out that the Federal Housing Administration played a critical role during the housing recession, providing a countercyclical supply of mortgage lending during the worst of the storm. While purchase originations of conventional mortgages in 2009 dropped to one fifth of their 2006 levels, the Housing Administration lending quadrupled over the same period of time, affording mortgage access to millions of homeowners who would not have had it otherwise. It's not entirely clear to me, however, whether the increase in Federal Housing Administration lending during the downturn was due to explicit policy direction of the Obama administration versus the wise policy of previous administrations who put into place a countercyclical mechanism like the Federal Housing Administration and the fact that demand shifted to this open channel of lending during the recession.
[Read the U.S. News Debate: Should the Government Help Homeowners With Underwater Mortgages?]
The president has eschewed a lot of bad ideas
Finally, while there's not much policy-wise that could stand in the way of market prices finding their own natural equilibrium, there are a lot of policies that were suggested that would have been distinctly counterproductive. These bad ideas include broad moratoriums on foreclosures (which would have introduced market uncertainty without changing the ultimate resolution of the properties), programs to allow the government to directly rent out homes whose owners were in default (which would have chilled the private investor interest in this market), and wholesale forgiveness of all negative equity (which would have either bankrupted taxpayers or destroyed all future investor interest in mortgage-backed securities).
[Check out the U.S. News housing blog.]
One bad idea he did pursue was the federal home buyer tax credits which I believe needlessly spent almost $30 billion on people who were already going to buy homes anyway. In the grand scheme of things, though, we could easily have walked down much darker alleys. The president should get some credit for resisting many of these bad ideas, championed loudly in some quarters, and for steering what has turned out to be a pretty centrist course with respect to housing policy (which has ultimately defused it as a politically powerful issue for Romney).
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