Doug Duncan told the National Economists Club at lunch today in D.C. that "We're not there yet [on stabilizing the housing market]." "So many things are going on that it's hard to sort out the effects." The most important driver of the housing market is private sector payroll. With the unemployment rate stuck above 10% for most of the rest of this year, the housing market turnaround will await stronger jobs growth.

When you have bad news to announce in Washington, do it just before a holiday. Christmas Eve, the Treasury Department announced it would lift the present law $200 b. limits on the “Preferred Stock Purchase Agreements” for Fannie Mae and Freddie Mac to make sure they will have positive net worth over the next three years. Through the third quarter of 2009, Treasury had purchased $60 b. of Fannie preferred stock and $51 b. of Freddie’s, but, as the holidays approached, market participants were concerned that $200 b. might not be sufficient to keep each afloat. Since Fannie and Freddie are the primary suppliers of mortgage market liquidity, they are a crucial support for economic recovery. Treasury was also faced with the expiration of its authority to lift the PSPA limits at the end of 2009, so it acted to reassure the markets.

It took two years, but Dean Baker's own to rent idea for how to mitigate the disruptive impact of widespread foreclosures is gaining some traction.  From the Wall Street Journal:

Fannie Mae will allow homeowners facing foreclosure to stay in their homes and rent them for as long as a year, as part of the government's latest effort to help troubled borrowers, while keeping more foreclosed properties from hitting the housing market.

The "Deed for Lease" Program lets borrowers who don't qualify for loan modifications transfer their property to Fannie Mae in exchange for a lease. Borrowers-turned-tenants will pay market rents, which in most cases are lower than the cost of mortgage payments, and might be offered extensions when their leases expire.

Felix Salmon has been a one-man lifeline for an idea called "Own to Rent" originally proposed by Dean Baker and which I happily co-signed in an op-ed in August 2007.  In a nutshell, the idea is to allow homeowners who would otherwise be foreclosed to stay in their homes as renters paying a fair market value.  The mortgage holder would own the property, but the value of the individual property probably would be lower due to the option granted to the former owner.  In this post, I consider how my thinking about the issue and the relevant context has changed in the past two years.

Today's New York Times details how the 1996 presidential election campaign created a capital gains tax cut for homeowners that came back to haunt us a decade later.  This is a rare glimpse of how some political necessity and a second best tax policy choice helped fuel the 2005 housing bubble.

One of today's headlines in The Washington Post is "Homeownership Mission Vulnerable After Rescue."  The worry is that with Fannie and Freddie in trouble, there will be less government support for affordable housing:

But the overarching question is about the future of the companies' founding purpose and long-standing mission to promote homeownership for lower-income families.

Regulators have made clear that they see Fannie Mae and Freddie Mac as essential to the health of the whole mortgage market, not just the lower end. James B. Lockhart III, director of the Federal Housing Finance Agency, barely mentioned affordable housing Sunday as he described an eight-point plan for the companies. Instead, he chose to underscore a broader mission: "the critical importance each company has in supporting the residential mortgage market in this country."

First, some full disclosure: In my day job I have a number of mortgage lending industry clients.  None of them knows about or were involved in this post in any way.

Dean Baker has a post today using his usual excellent analytic abilities to dissect a story in today's New York Times about the current state of the mortgage issue.  While I don't always agree with Dean's sense of outrage, his post is definitely worth looking at after you read the Times.

One thing the article and Dean fail to point out is that the housing/mortgage crisis isn't really one problem; it's a steady series of different problems that absolutely defy a single or simple solution.  Lumping them together as "The Crisis" as the Times does complicates the public policy process.

Via the Real Time Economics blog, Daniel Gross makes the point from my recent post on the profligate vs. the prudent better than I did in his Moneybox column on Monday, "A Tax Break for Bubble Heads."  His vehicle is the legislation moving through Congress to provide tax breaks and assistance to the housing industry.  Here's the key excerpt:

Yesterday afternoon, the Senate cleared the way to pass a $14.9 b. housing stimulus bill, H.R.3221, next Tuesday, that won't stimulate housing much.  They did that by killling Senator Durbin's (D-IL) amendment to give bankruptcy judges the power to rewrite first mortgages.  That was a deal-breaker for the mortgage lending industry.  It was also the only thing that might have helped those facing foreclosure, albeit as the cost of raising future mortgage interest rates for the increased risk that future mortgages might be written down.

I confess: I get annoyed beyond measure when I read articles like this one from Alan Zibel and J.W. Elphinstone of the Associated Press, which ran in my local paper this week. It manufactures drama where none is warranted. Here's the hook: