2012 election + weak housing market = new White House policies?

Introduction

With the 2012 presidential election visible on the horizon, the Obama administration is renewing efforts to revive the housing market amid weak demand and a stream of foreclosed properties, the Wall Street Journal reports.

Policy options include having mortgage giants Fannie Mae and Freddie Mac relax their lending rules to investors; allowing investors to purchase excess property; and having Fannie and Freddie rent foreclosed homes to ease the property glut. The administration could also offer incentives for banks to reduce the principal of mortgages for borrowers who owe more than their house is worth.

So far, the administration has focused on helping borrowers avoid foreclosure by refinancing or modifying their loans, but economists and consumer groups say those efforts have fallen short. The Home Affordable Modification Program (HAMP), launched soon after President Barack Obama took office, has so far helped only about 600,000 borrowers. Another 4 million borrowers are either in foreclosure or far behind in their monthly payments.

Blame Fannie Mae – A Republican member of the now-defunct Financial Crisis Inquiry Commission is trying to revive the argument that Fannie Mae and government housing policies – not greedy Wall Street banks and lax regulation – are to blame for the 2008 financial meltdown.

Fannie Mae led the way into risky lending, not the private sector, writes Peter Wallison of the American Enterprise Institute in a Wall Street Journal opinion column. He says this view is supported in a newly published book, “Reckless Endangerment,” which traces how a former aide to Democrat Walter Mondale became chairman of Fannie Mae in 1991 and transformed the mortgage giant into a “political powerhouse, intimidating and suborning Congress.”

That history was not included in the crisis commission’s 662-page final report, Wallison says. “Far from being a marginal player, Fannie Mae was the source of the decline in mortgage underwriting standards that eventually brought down the financial system. It led rather than followed Wall Street into risky lending. “

Wallison sharply disagreed with other members of the crisis commission and published his own dissenting report. On Wednesday morning, a Republican-led subcommittee of the House Oversight and Government Reform panel is scheduled to hold a hearing titled, “What went wrong at the Financial Crisis Inquiry Commission?”.

CFPB prepares for bank exams – Big U.S. banks can expect to receive a greeting on July 21 from the Consumer Financial Protection Bureau, which officially opens for business that day.

The CFPB said today that on July 21 it “will reach out to banks and their affiliates to establish channels of communication and to introduce them to the agency’s supervision and examination process.” Under the Dodd-Frank reform law, the bureau inherits the power to enforce existing consumer protection regulations from other federal agencies and ensure that 111 banks, which each have assets of $10 billion or more, follow them.

In the weeks that follow, CFPB staff will conduct on-site examinations at banks. During the exams, the bureau will “assess each institution’s internal ability to detect, prevent, and remedy violations that may harm consumers.” Examiners will also look at the risk to consumers from specific products and services sold by a bank, and how each is marketed and managed.

The bureau also plans to post its examination manual on its website and invite suggestions for improvements from the banking industry as well as consumer groups and the general public.

“Starting on July 21, we will be a cop on the beat – examining banks and protecting consumers,” Elizabeth Warren, the special adviser to the Obama administration, said in a statement.