Bank of America CEO Brian Moynihan, left, and Ken Rosen of the Fisher Center… (Justin Sullivan, Getty…)
Millions of Californians remain stuck in the state's increasingly expensive rental markets, unable to buy homes as they deal with tight credit markets and damage to their finances from the Great Recession.
Sounds like a mess fit for two of the nation's most prominent turnaround specialists — California Gov. Jerry Brown, fresh off his state budget-balancing act, and Bank of America Corp. Chief Executive Brian Moynihan, still engaged in resurrecting that institution from the mortgage meltdown.
But neither Brown nor Moynihan offered any easy answers Tuesday at a UC Berkeley summit on the future of residential housing.
Brown, the government man, said the free market needs to handle this one. Moynihan, the banker, said it will take maybe a decade before the housing finance system can wean itself from government life support.
Having accomplished his quixotic quest to raise taxes and balance the state budget, Brown seemed disinclined to tackle thorny housing issues. They are important, he said, but less so than dealing with public education and health.
"Essentially the housing market is banks, developers and individuals," Brown told the audience at a state office building in Oakland. "In this instance, I think the complexity is such that our efforts ought to be relatively restrained."
Moynihan — who has spent much of his tenure on problems stemming from Bank of America's takeover of failed Calabasas home lender Countrywide Financial Corp. — also offered little in the way of solutions.
Homeowners, he said, must again regard homes as a place to raise children rather than as an investment and ATM. His bank — which has retreated from many parts of the mortgage business — may offer some help as its recovery makes it able to extend more credit.
"I think we've got the balance a little too tight now, and we'll loosen it," said Moynihan, who joined Bank of America three years ago.
Meanwhile, Californians still struggle with the state's recovering housing market on a number of fronts. Prices are increasing — dramatically so in some areas — but that's driven in large part by an influx of cash buyers who are triggering bidding wars. That often leaves renters who wanted to buy at the bottom of the market unable to compete.
And, despite rising prices, many owners who bought during the housing bubble remained trapped paying mortgages totaling more than their homes are worth.
The mortgage market's almost total dependence on the federal government — the housing market's biggest problem — will probably take five to 10 years of work by a Congress that has shown little recent interest in addressing the issue, Moynihan said.
The problem is twofold, Moynihan said. First, private investment must replace the government as the provider of prime mortgages, a role filled largely since the financial crisis by the bailed-out firms Fannie Mae and Freddie Mac.
And the third leg propping up the mortgage business — the Federal Housing Administration's loan-insurance program — needs to resume its traditional role of helping first-time buyers obtain mortgages they can afford, Moynihan said. That role appears unlikely any time soon as the FHA, which has skirted insolvency, addresses its heavy losses by tightening its own lending policies.
Moynihan and Brown were a curious pair, two battered survivors discussing a third — California's housing market.
The governor reminded Moynihan that, as California's attorney general, Brown had filed a lawsuit accusing Countrywide of creating a foreclosure wave by deceptively marketing risky loans. The payments would ultimately "explode" on unsuspecting borrowers, he said.
The suit was filed in late June 2008, just before Bank of America shareholders voted to ratify the acquisition of Countrywide by Moynihan's predecessor, Ken Lewis. BofA later settled the suit by agreeing to provide as much as $8.7 billion in assistance to troubled borrowers — one in a seemingly never-ending series of mortgage-related settlements totaling tens of billions of dollars.
"We've put all that behind us, governor," Moynihan said. "I won't remember it if you don't."
California's housing ups and downs have mirrored the nation's but are far more exaggerated, noted Ken Rosen of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, who also spoke at the housing summit. Propelled by government programs, homeownership rose nationally rose from 62% of householders in the 1960s to 69.2% during the housing boom, as lending standards grew ever looser.
The homeownership rate nationally has since fallen back to 65.5%, Rosen said. But in California, only 55.6% of households are homeowners, with even lower levels in urban areas: 48.8% in Los Angeles County, 42% in Oakland and 37% in San Francisco.
With home prices down 25% from their peak nationally and mortgage rates at record lows, "affordability is the best it's been in 50 years," Rosen said. "A lot of people on Wall Street say we should have a boom."
But much of the support for the California home-purchase market has been from cash-laden private investors, seeking bargain prices on homes they can rent out.
Many normal homeowners "can't get credit," Rosen said. "That's why we haven't had a boom in the for-sale market."