In 2011, it’s the housing market, stupid

You all know the familiar gospel, “It’s the economy, stupid.”

The phrase hails from Bill Clinton’s 1992 presidential campaign and was used as a rallying cry to focus voter attention on the lingering pains of a recent recession.

The warning remains as true today as it was then — even more so — but there is another level to the comprehension of our national problems that still is not being as fully addressed as it should be.

It’s not only the economy. That’s far too broad a statement.

It’s the housing market.

The president, members of Congress and the slate of Republican presidential hopefuls are obviously fully aware of the former, but they’re practically clueless about the latter.

In what amounts to bailing water with a thimble, President Obama last week unveiled yet another attempt to right our economic ship, but it’s still too meager an effort.

The expanded Home Affordable Refinance Program is expected to affect maybe 1.5 million to 2 million homeowners, with looser requirements that should allow more participation than earlier versions.

According to Moody’s Analytics and Equifax, some 14.5 million mortgages nationwide were underwater as of the end of the first quarter, representing 29 percent of the 51 million home mortgages nationwide. In California, the numbers are worse — 2.1 million mortgages underwater out of 6.3 million total, or 33 percent.

And that’s not counting all the other millions whose loans are right at value or barely above, leaving them effectively in no man’s land in terms of traditional refinancing standards.

One of the biggest problems with the latest program is it only applies to loans owned or backed by Fannie Mae and Freddie Mac.

Everyone else — who lack the assistance of government muscle attached to their loans — is out of luck.

What this means is that not only do you get to watch your home value decline and your equity erode, you also get frozen out of the one silver lining in these past few years of economic storm clouds, which is the ability to take advantage of record-low interest rates.

Housing fuels the economy, and we won’t see the economy fully heal until we heal the housing market.

Without that, the growing family who might want to sell their home and upgrade can’t, the couple who might want to remodel their kitchen can’t, the guy who might want to take out a home equity loan to buy a car can’t.You want to see trickle-down economics? This is it.

Except the only thing trickling down is pain and stagnation.

If that family can’t sell their home, they can’t buy another.

If the couple can’t afford a new kitchen, they can’t hire the tile guy to do the floor or buy a new range.

If the guy can’t buy the new car, the dealership loses a sale, meaning one more car still on the lot, one less needed to be built by the manufacturer.

And so on and so on.

At the end of the day, it all comes back to the banks, many of whom received federal bailouts but are now hoarding money tighter than Mr. Scrooge.

They could choose to help their customers and in the process help the nation as a whole.

Or they could simply sit on their cash, collect 5, 6 and 7 percent interest from those homeowners still able to pay, and foreclose on those who can’t — all of which merely ensures that the economy will continue to founder for years to come.

How infuriating it is that the financial sector created the mortgage vehicles that caused the housing bubble, then needed taxpayer money to survive the bubble’s bursting, then used that money to make more money — all without ever substantively helping the millions of people who have suffered the most and whose economic health is truly the foundation of any lasting nationwide recovery.

Many economists believe we won’t truly see stability in the housing market — and thus the broader economy as well — until this bogus “value” is written off the books.

That may be a fantasy, but at the very least, the banking industry could agree to some universal standards that would allow a great many more homeowners to get a shot at new loans.

Here’s my proposal: If you’re current on your payments and have not missed more than one in the last year and your loan is no more than 25 percent above the current value of your home, you qualify for refinancing — across the board.

For the banks, if there ever were a financial moment crystallized around “ask not what your country can do for you — ask what you can do for your country,” it is now.

So guys, are you with us, or against us?

This story was originally published October 29, 2011 at 10:11 PM with the headline "In 2011, it’s the housing market, stupid."