More than five years into the worst foreclosure crisis since the Great Depression, we’re finally starting to see signs of a housing recovery. Home prices have risen in markets across the country for three consecutive months. Construction on new homes has surged to its highest levels since 2008. Foreclosure filings are at a five-year low, while foreclosed properties now make up the smallest percentage of home sales since the crisis began.
The recent upswing has made the nation’s largest financial institutions optimistic. JPMorgan Chase CEO Jamie Dimon announced earlier this month that “the housing market has turned the corner,” while Wells Fargo’s Tim Sloan similarly said that his company has “seen a turn” in the market.
There’s no shortage of opinions on why the housing market is suddenly on the mend and who’s responsible for turning it all around. But few observers credit the federal government, which has provided extraordinary levels of support to the housing sector since the crisis began. Here are five ways in which the government helped nurse the market back to (relative) health.
- Fannie Mae and Freddie Mac stayed open for business. In the late summer of 2008, as the entire financial system began to crumble, mortgage financiers Fannie Mae and Freddie Mac were on the brink of failure. The Bush administration placed the companies under government conservatorship in September 2008, and since then they have required more than $140 billion in taxpayer support to stay solvent. In return, Fannie and Freddie have kept mortgage credit available, backing roughly 60 percent of all home loans since the crisis began.
- The Federal Housing Administration took on a larger market share as private actors retreated. As private investors retreated from the mortgage business in the early days of the crisis, the Federal Housing Administration—a government-run mortgage insurer—increased its insurance activity to keep money flowing into the market. In 2005 the agency only insured about 3 percent of home-purchase loans. By 2010 that number had increased to 40 percent. According to one estimate from Moody’s Analytics,the agency’s actions prevented home prices from dropping an additional 25 percent, which in turn saved 3 million jobs and half a trillion dollars in economic output.
- The Federal Reserve pushed mortgage rates to record lows. Since the crisis began, the Federal Reserve has taken unprecedented steps to keep interest rates low, hoping to spur investment in housing and other sectors of the economy. In addition to setting bank borrowing rates near zero, the central bank in November 2008 began purchasing large quantities of mortgage-backed securities and other financial assets, a process known as “quantitative easing,” to further lower rates and stimulate the economy. (The Fed expanded the bond-buying program for the second time last month.) In part because of the Fed’s actions, average mortgage rates are below 3.5 percent for the first time ever, which, combined with low housing prices, makes owning a home more affordable than ever—as long as you can get a mortgage.
- The Obama administration helped millions of homeowners refinance to those low rates. More than 16 million households have refinanced since the spring of 2009, in part because of programs put in place by the Obama administration. In 2009 the Obama administration established the Home Affordable Refinance Program to streamline refinancing of underwater loans owned or guaranteed by Fannie Mae and Freddie Mac. Then, in October 2011 the administration instituted major changes to the program to boost participation. More than 1.6 million families have refinanced through the program so far. Roughly another 1 million homeowners with loans insured by the Federal Housing Administration have refinanced since 2009 through the agency’s Streamlined Refinance program.
- The administration helped millions more avoid foreclosure by restructuring their mortgage. The Obama administration’s Home Affordable Modification Program has helped more than 1 million struggling families avoid foreclosure by modifying their home loans. The program established an industry standard for mitigating losses and keeping families in their homes, which has led to millions more non-government-supported mortgage modifications since 2009.
To be sure, many government housing programs have fallen well short of their goals, and the crisis has lasted much longer than most analysts expected. It’s fair to say that the housing market and the broader economy would have benefited from a more aggressive response from Congress and the Obama administration.
But it’s also important to give credit where it’s due. Without the federal government’s unprecedented support, it would have been much more difficult for middle-class families to get a home loan since the crisis began. Home prices would have plummeted even further than they did. Fewer families would be able to take advantage of historically low interest rates. More families would have lost their homes to foreclosure. And a further housing downturn would have sent devastating ripples throughout our economy.
Indeed, there are many reasons why housing seems to be a bright spot in our economy today, and the government is certainly one of them.
John Griffith is a Policy Analyst with the Housing team at the Center for American Progress.