With Congress working to end the administration's programs to scale back the foreclosure crisis, RealtyTrac and Trulia released the results of a study that show 54% of adults believe the housing crisis is here until at least 2014. When I think about grading President Barack Obama on financial justice issues, I must decide what should be defined as financial justice. Understand the state of the country when he first took office: America faced a housing crisis due to the lack of regulation of banks and the subprime market, and foreclosures were about to rise not just from bad loans, but from homeowners losing their jobs. I would give the president a C on financial justice; Obama has succeeded when it comes to regulating banks to prevent a future crisis, but he has lacked when dealing with current foreclosure issues, leading to an uncertain future for the long-term health of the housing market and prices.
Foreclosure Prevention Programs
The housing market began to deteriorate and foreclosures began to rise in 2007, but the bottom came in the fall of 2008, catapulted by the fall of Lehman Brothers. In March 2009, the administration made a decision to step in and help save some mortgages. It launched a series of programs under the Making Home Affordable Program. The Home Affordable Modification Program (HAMP) was one of these programs to be run out of the Treasury Department. HAMP set guidelines for what was needed to modify a mortgage, and banks and servicers were invited to participate. One key component here was that nothing was mandatory for the banks; their participation was strictly voluntary. The program was supposed to help save millions of homes from foreclosure and hold off the crisis. In reality though, the program has been a failure.
According to the latest scorecard, there are only 609,615 active permanent modifications from 2,684,832 eligible delinquent loans. Early in the process, trial modifications lasted three months, and could last longer than six months without a permanent modification being offered. Housing counselors still have issues with aged trial modifications.
No program under the Making Home Affordable Program has had the level of impact that was hoped for. Though some homes have been saved, the expectations were to save millions of homes. That has not been the case.
Once Obama finished dealing with Health Care Reform, he turned his attention to financial reform. The House and the Senate debated numerous proposals before the Dodd/Frank Act took center stage as the bill of choice. This bill was massive in scope and covered almost every facet of the banking industry. The biggest component of this reform in bill was the creation of the Consumer Financial Protection Bureau (CFPB). This all-encompassing regulatory body was to be independent from Congress and would be the one regulatory body that covered banks. Many of the rules relating to the CFPB will go into effect on July 21, 2011 — they recently launched a website, and the implementation team is working to lay the initial groundwork. The Republican leadership in the House, who have always opposed the creation of CFPB, is trying to weaken the agency before it can even get off the ground. The banking industry has not been very excited about this, and spent millions of dollars trying to defeat it.
There are some components of this reform bill that may not be great for consumers. Banks are going to find a way to pay for increased costs that are a result of more regulation, and pass that cost on to consumers. There are some amendments, like the Durbin Amendment, that may increase the cost of goods for low-income families as a result of capping interchange fees for big banks. But it will not cap these fees for small banks, which include many providers of prepaid cards. These added costs of reform make it difficult to give the highest grade possible, but I believe that the majority of these reforms are a step in the right direction.
You can see from my perspective, the president has been hit or miss on financial justice. He has been successful on bank regulation, while his performance on the foreclosure crisis has been abysmal at best. I think his overall grade is right in the middle, and there is definitely room for improvement. Even though I have been a supporter of Obama, I am not sure this is one of his strongest successes so far.
Overall Grade: C
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