The crisis confounds fiscal policymakers even as it threatens millions of homeowners with foreclosure, drives home values down sharply and dangerously undermines the balance sheets of banks and other financial institutions across the country.
In an attempt to bring down stubbornly high mortgage rates, the Federal Reserve on Tuesday said it would buy up to $600 billion of debt securities issued by Fannie Mae, Freddie Mac and other government-backed housing finance agencies. The move succeeded, at least in the immediate term, in dropping rates on 30-year fixed mortgages by half a percentage point.
Obama's campaign platform included proposals to grant a mortgage tax credit to 10 million homeowners who don't itemize deductions on their tax returns and allow bankruptcy judges to approve principal reductions in residential mortgages.
But thus far he has not responded directly to some of the more aggressive ideas for mortgage relief. These include a proposal endorsed by the National Assn. of Home Builders for the government to subsidize below-market rates of 2.99% for 30-year mortgages attached to homes purchased between now and June 30, and 3.99% for homes purchased from then to the end of 2009.
The group estimates the cost of the measure at more than $140 billion. It argues that the program will drain excess inventory from the housing market, reinvigorating a moribund home construction sector.
Some of Obama's supporters say that he hasn't addressed housing in greater detail simply because other fiscal issues demand more urgent attention.
"How much time has he had to focus on the details?" Kuttner said. "When he does, I hope it will become obvious that mortgage relief is important."
Another issue on which Obama has not taken a detailed stand is the fate of the U.S. automobile industry, which is seeking bridge loans or a bailout to help it survive the sharp drop-off in sales created by the evaporation of credit and the economic slowdown.
The president-elect has backed relief for the Big Three in principle.
"We can't allow the auto industry to simply vanish," he said during a news conference Monday after naming Federal Reserve official Timothy F. Geithner as his nominee for Treasury secretary. But he called on the automakers to come up with "a better thought out proposal" to use federal funds when they come before Congress with a new request this month.
