Mortgage issues to watch during Obama's 2nd term - WBTV 3 News, Weather, Sports, and Traffic for Charlotte, NC

By Kirk Haverkamp
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Now that the election is behind us, current and potential homeowners may be wondering what will be the impact of President Obama's re-election on the mortgage and housing markets?

Though no one can be sure exactly what the president and Congress will do, or how the markets will react, there are a few areas that will merit keeping an eye on.

Will DeMarco stay?

One of the key indicators will be whether President Obama presses to replace Edward DeMarco as the head of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac. DeMarco has been heavily criticized in Democratic circles for refusing to implement some of the President's policy proposals, most notably one that would have Fannie and Freddie write off part of the balance owed on up to a half million underwater mortgages for at-risk homeowners.

DeMarco became acting director of FHFA in 2009, when the former director stepped down. Obama nominated North Carolina Banking Commissioner Joseph Smith in 2010 to be the new director, but Smith withdrew his name after running into staunch opposition from Senate Republicans. Obama hasn't put forward a new candidate since, despite being strongly urged to do so by many of his supporters, allowing DeMarco to remain acting director.

Housing policy didn't get much attention during the campaign, but if Obama acts quickly to try to replace DeMarco, once the fiscal cliff has been addressed, it will likely signal that he plans to aggressively pursue his housing agenda in the second term.

Expanded refinance assistance?

Another issue to watch is how hard Obama pushes for expanded refinance assistance for underwater homeowners. Reports of a so-called "HARP 3.0" began floating around almost as soon as the most recent expansion of the Home Affordable Refinance Program (aka HARP 2.0) went into effect last winter.

The form any additional refinance assistance might take is unclear, because the legislation would have to be approved by Congress. However, one of the leading proposals would essentially turn HARP into a "streamlined" refinance program for Fannie Mae and Freddie Mac borrowers -- basically allowing anyone with a Fannie or Freddie mortgage who is current on their mortgage payments to refinance almost automatically.

Another plan that has been making the rounds would provide refinance assistance to the millions of underwater borrowers whose mortgages are not backed by Fannie, Freddie or any other government-affiliated body -- a group that currently is not eligible for HARP. One way of doing this would be a proposal introduced by Obama last January that would enable underwater homeowners with strictly private sector mortgages to refinance through the FHA, provided they meet certain criteria.

CFPB will press ahead

Obama's re-election means the recently established Consumer Financial Protection Bureau (CFPB) will continue on its present course, rather than being rolled back or abolished as many in the financial industry had hoped. That means mortgage lenders will be more closely regulated, which could make mortgages less profitable and as a result more costly and difficult to obtain, at least until lenders adjust to the new rules. At the same time, the CFPB is promoting new guidelines intended to make mortgage transactions more transparent for consumers and help them more clearly understand the financial arrangements they are agreeing to.

Another major issue the CFPB will be dealing with early on is creating a definition for what is to be called a "qualified mortgage," essentially setting official criteria for determining a consumer's ability to repay a loan. Since mortgages that do not meet this standard would, by definition, be considered high-risk -- and therefore considerably more expensive for borrowers -- the question of what would constitute a qualified mortgage is of keen interest to mortgage lenders.

Qualified mortgage standard a critical issue

One of the central issues in defining a qualified mortgage is what sort of down payment might be required. Setting the standard at a down payment of 20 percent would make for a very safe mortgage, but would also make it difficult for most potential homebuyers to qualify for a mortgage at the lowest rates. A lower down payment requirement, such as 5 percent, would make low rates more widely available to consumers, but increase the risk of default.

The Obama administration hasn't come out in favor of any particular criteria for qualified mortgages, other than that they should ensure that a borrower is able to repay the mortgage. The standard that is eventually adopted for down payments, however, will have a significant impact on mortgage availability and affordability in the United States.

Replacing Fannie Mae and Freddie Mac

It's not clear how Obama's re-election will affect the development of a successor or successors to Fannie Mae and Freddie Mac -- those plans are still in the works. At the moment, the only thing everyone agrees on is that the two mortgage guarantors will continue to be wound down over the coming years and that something will be put in place to replace them and guarantee mortgages in the residential market.

Although some Republicans in Congress are pressing for a strictly privatized approach, it's likely that whatever emerged to replace Fannie and Freddie would have involved some sort of government guarantee regardless of who was elected. The one thing you can count on is that the new system will seek to ensure the continued availability of the 30-year fixed-rate mortgage, the centerpiece of the American housing market for generations and a product that would have a hard time surviving in a strictly private market.

A note on mortgage rates

Finally, presidents don't have much control over mortgage rates, although the Federal Reserve does. The Federal Reserve recently undertook a third round of "qualitative easing," buying large quantities of Treasury bonds to free up credit, and has publicly committed to a policy of supporting low interest rates through at least 2015. Fed Chair Ben Bernanke and a majority of the Fed's Board of Governors were appointed by Obama (with Bernanke originally a George W. Bush appointee), so major changes in Fed policy seem unlikely.

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