There was our President stating once again that he had a plan to fix the housing crisis that is stalling our economy and harming his reelection chances. When he was done making his proposal, it occurred to me that after 35 years of my working in the real estate market this man really had no more idea of how to resolve the problem than the average homeowner. Unfortunately our President and his advisers are clueless and potentially deleterious to the process.
The plan is a follow up to a prior plan known as HARP (Home Affordable Refinance Program) which did not quite achieve what it was aimed to do. About 850,000 people did refinance under the program, but the housing market barely blinked and more houses are underwater and in foreclosure than before HARP with no discernable end in sight. The President, being the President, feels that government is the solution to all problems (even the ones it created – such as the housing crisis). He lurched into a new plan that he believes will be the magic elixir for eroding home prices.
While I immediately observed HARP was not the solution, I contacted someone who works with the loan market every day and really understands the problems that still exist. He does not have a Harvard degree and that may be why the President did not call on him. He is Kent Kirkpatrick, one of the owners and CFO of American Capital. American Capital (AC) is a mortgage banker. They are the main street crowd that creates the loans for the housing market. Kirkpatrick, the company compliance officer, stated when the rules were being loosened in the middle of the last decade, AC refused to go along with the game. He lost a lot of folks who went to players like WAMU, who were offering fat compensation packages for people creating the loans the government had requested, and he lost a lot of sleep wondering whether he had done the right thing. Now his company thrives when 93% of mortgage bankers across the country have closed shop.