It was a critical plan to jump-start the economy.
President Obama pledged at the beginning of his term to boost the nation’s crippled housing market and help as many as 9 million homeowners avoid losing their homes to foreclosure.
Nearly three years later, it hasn’t worked out. Obama has spent just $2.4 billion of the $50 billion he promised. The initiatives he announced have helped 1.7 million people. Housing prices remain near a crisis low. Millions of people are deeply indebted, owing more than their properties are worth, and many have lost their homes to foreclosure or are likely to do so. Economists increasingly say that, as a result, Americans are too scared to spend money, depriving the economy of its traditional engine of growth.
The Obama effort fell short in part because the president and his senior advisers, after a series of internal debates, decided against more dramatic actions to help homeowners, worried that they would pose risks for taxpayers and the economy, according to numerous current and former officials. They consistently unveiled programs that underperformed, did little to reduce mortgage debts owed by ordinary Americans and rejected a get-tough approach with banks.
Doing more to address the housing crisis may be crucial not only for an economy flirting with another recession but also for a president running for reelection.
After watching their homes’ values collapse in recent years, a quarter of all homeowners are “underwater,” owing more than their homes are worth. The president’s housing policy has caused a rift with political allies, such as black and Hispanic groups, whose members have been disproportionately hurt by the crisis.
On Monday, Obama is set to travel to the foreclosure capital of the nation, Nevada, where most borrowers are underwater. While there, he will meet with homeowners and push for passage of his jobs legislation, which includes money to rehabilitate hard-hit communities, and mention a program to be unveiled as soon as Monday that will reduce monthly payments for some underwater borrowers.
But Peter Orszag, a former senior White House economic adviser, said the administration has underestimated how much the nation’s massive mortgage debts would weigh the economy down after the financial crisis.
“A major policy error has been to put too little weight on the long, hard slog following a financial slump,” he said. “That leads you to being much less bold with housing.”
Not that there were easy answers. The administration faced the worst housing crisis since the Great Depression. Spending large amounts of taxpayer money to bail out some homeowners — but not necessarily their neighbors — carried huge political risks and faced opposition in Congress.
In this context, some senior officials say they could not have been much more aggressive.
“We tried to operate at the frontier of what was possible and have continuously expanded and refined our programs in an attempt to reach as many homeowners as possible,” said Treasury Secretary Timothy F. Geithner. “We do not believe that there were feasible alternatives available to us within our authority that were better.”
Obama has rarely spoken publicly about his frustrations with the housing crisis, but in a private meeting with his advisers at the White House in December, his concerns boiled over. The president opened the meeting by saying how he had received letters from homeowners warning about problems with his housing programs. He pointed out that he had been assured by his advisers that banks would be able to step up, according to two people who attended.
But at the meeting, he said he was now frustrated to learn, by way of a conclusive new federal review, that banks were not providing required relief to many borrowers.
“He was clearly disappointed,” said one participant in the meeting, “to realize the problem was worse than he thought.”
Obama’s early challenge
After his election, Obama confronted an economy in free fall, fast-rising unemployment, and a national landscape of underwater borrowers who were trapped in their homes and facing potential foreclosure.
The incoming president tried to tackle the problems in the overall economy with a nearly $800 billion economic growth plan. But Democrats and many economists also called for a specific strategy to help borrowers.
This story of the administration’s response to the housing crisis is based on interviews with more than 40 former and current administration officials and others familiar with housing policy, some of whom spoke on the condition of anonymity to discuss confidential conversations.
Obama promised to spend $50 billion to $100 billion of the $350 billion remaining in the Troubled Assets Relief Program, or TARP — the giant pool of money that had been used to bail out banks in the months before he came to office — to provide aid to homeowners: Main Street, not Wall Street.