WHITE HOUSE CONSIDERS WAYS TO STEM HOUSING WOES

Fri Aug 26, 2011 9:25am EDT

Aug 26 (Reuters) - 
The Obama administration is looking at options for reviving the housing market, an Achilles heel for the struggling U.S. economic recovery. While private-sector expectations have been building that the White House could roll out steps on housing as early as September, an administration official said there were "no plans to announce any major new initiatives at this time."
But the official added that the administration continues to "look for ways to ease the burden on struggling homeowners and to help stabilize the market."
Below are some policies the administration could turn to help the housing sector.
STEM GLUT OF FORECLOSURES
The backlog of unsold homes remains one of the biggest challenges for the administration in trying to boost a housing market still struggling to recover from its 2007 collapse.
Already, the Treasury Department has asked hedge funds, private-equity groups, and institutional investors for ideas on buying and converting foreclosed homes owned by Fannie Mae (FNMA.OB), Freddie Mac (FMCC.OB) and the Federal Housing Administration into rental units. By removing foreclosed homes from the market, the government could help stabilize home prices.
The administration has already allocated $45.6 billion in taxpayer funds to help prevent foreclosures. About $1.2 billion of the money set aside for housing assistance has been spent, according to the Government Accountability Office.
Properties in some stage of the foreclosure process made up nearly one-third of all U.S. homes sold in the second quarter of 2011, according to real estate data firm RealtyTrac.
PRINCIPAL REDUCTIONS, REFINANCE OPTIONS
Several programs already exist to help homeowners refinance mortgages or avert foreclosure. These provide incentives for lenders to alter the terms of loans to make them more affordable.
Under one of the Obama administration's taxpayer-funded housing programs, states have chosen to allocate $1.52 billion to help write down principal.
By the last quarter in 2010, about 11.1 million homeowners, or 23 percent of all owners of residential property, owed more on their mortgages than their home is worth, according to CoreLogic. There are several ways the U.S. government could deal with troubled mortgages on a larger scale.
* The White House may consider a plan to allow millions of homeowners with government-backed mortgages the ability to refinance their loans at historically low rates, the New York Times reported on Thursday, citing two people briefed on the administration's discussions.
* The administration could come up with a plan to forgive the loans and force banks and/or taxpayers to absorb the losses. But this would be hard politically as it would be viewed by many as rewarding irresponsible borrowing behavior.
* The mortgage buyers Fannie Mae and Freddie Mac, which were seized by the government in 2008, could forgive a portion of homeowners' mortgage debt. But their regulator and now conservator, the Federal Housing Finance Agency, has told lawmakers such a move does not meet its goals of conserving the companies' assets.
TAX INCENTIVES
A politically popular program gave qualified buyers in 2008 through 2010 a tax credit of up to $8,000. Nearly 3.9 million taxpayers had received $27 billion dollars from the credit through the end of 2010, according to the Internal Revenue Service.
Since the credit expired, median home prices have fallen. While another tax credit could help the housing market, it would likely not be as politically popular as lawmakers look for ways to fill record budget deficits.
A presidential budget commission last year proposed turning a mortgage-tax deduction into a 12 percent tax credit for buyers. The plan, which languished after being presented to Congress in December, would likely await a broader debate on tax reform, a debate that might heat up when lawmakers return from an August break.
INCREASE CAPS ON LOANS BACKED BY FANNIE, FREDDIE
Congress raised the ceiling on the size of the loans the government can guarantee in 2008 to help ease the credit crisis. The loan limits on mortgages backed by Fannie Mae, Freddie Mac and the Federal Housing Administration is set to fall to a maximum of $625,500 from $729,500 at the end of September.
The administration and Congress could take action by extending the October 1 deadline on the so-called conforming loan limit.
However, most Republicans support returning to the lower loan levels, which would make it more expensive for some borrowers to obtain access to credit. The administration has also signaled a desire to wean the mortgage market from the higher caps.
TWEAK TAXPAYER-FUNDED PROGRAMS TO PREVENT FORECLOSURES
The Obama administration's top program to prevent foreclosures is designed to give homeowners a reprieve by permanently modifying their mortgages.
A total of 657,044 homeowners have won a permanent modified loan as of June -- a fraction of the 3 million to 4 million the administration had initially forecast, according to the Treasury Department. Borrowers have noticeably dropped out of the program and not successfully modified their loans. About 1.6 billion homeowners have started a trial modification since the program began in 2009, while 760,796 distressed homeowners have canceled their involvement.
The U.S. Treasury has stepped up efforts to reach more homeowners by instructing Wells Fargo (WFC.N), Bank of America (BAC.N) and JPMorgan Chase & Co (JPM.N) to improve their modification efforts substantially to merit the financial incentives offered under the program.
The program expires at the end of 2012. Congress would need to pass legislation in order to change the parameters of the program but it is unlikely to do so with Republicans in the House of Representatives trying to kill the program altogether.
Barring any changes, regulators might decide they need to apply more pressure on servicers to modify loans -- something Federal Reserve Chairman Ben Bernanke has said he is doing "when appropriate." ( Reporting by Margaret Chadbourn, Editing by W Simon )