As the single largest asset for most US households, housing is a critical part of the economy and defines communities across the nation. The weak recovery in the housing market continues to undermine a national economic recovery, funding for vital state and local government services, and the stability of major financial institutions.

Pew is working to identify practical solutions that address those aspects of the housing market that continue to drag down prices and homeowner equity, and that continue to limit access to credit and sound housing investments. On June 20, 2012, Pew held a conference led by Senior Advisor Sheila Bair to evaluate potential short - and - medium -term policy options.  The conference was attended by over 120 invited participants from the financial industry, public and non-profit housing and regulatory organizations, and academics.  The day-long discussion focused on three major topics:

Challenges to Clearing the Markets: A Legal and Accounting Perspective

The session paired a strategic overview of loss mitigation efforts to date with a thoughtful discussion of important and often complex legal and accounting issues that must be addressed when developing polices to reduce foreclosures and clear housing markets.  The discussion covered principal reduction and other major foreclosure mitigation strategies, as well as issues involving mortgage-backed instruments.

Restructuring Debt: Loan Modifications and the Concern about Second Liens

The session discussed the negative equity constraints on the housing market and in turn the issues related to restructuring housing debt and stemming new foreclosures.  In addition, the session addressed the complexities raised by a second lien when attempting to modify a first mortgage in order to prevent a foreclosure.

Clearing Excess Housing Supply: Real Estate Owned (REO)

The session discussed solutions for reducing the excess inventory of REO—real estate owned by banks, guarantors, and servicers after completion of foreclosure proceedings. 

In advance of the conference, Pew commissioned 13 research papers by leading thinkers from across the country on the scope of problems in the housing market and the factors that must be considered to determine the feasibility of pragmatic policy solutions.  The research and conclusions expressed in these papers are those of the author(s) and do not necessarily reflect the views of Pew, its management or its Board.

Read the research papers below.

The Size and Scope of the Problems Subordinate Mortgages Pose  to the Recovery of the Housing Market By Vicki Been, et al., | New York University This paper assesses the nature and extent of potential losses from the default or write-down of second liens, analyzes whether and how second liens are impeding actions that could hasten the stabilization of the housing market; and evaluates alternative ways to address those two problems.

Revitalizing the American Housing and Mortgage Markets: Are There Lessons To Be Learned From Canada’s  Recent Experience? By Arthur Donner and Doug Peters This paper compares the housing and mortgage finance systems in the United States and Canada and whether there are lesson that could be learned from the recent mortgage and housing crisis.

What’s Really Happening to REO Stock? An Analysis of Three Cities: New York, Atlanta, and Miami By Ingrid Gould Ellen, et al., | New York University Focusing on three diverse cities, this paper identifies the characteristics of the properties that enter and exit Real Estate Owned inventory and analyzes what happens to these properties. The paper sheds light on the barriers to returning the properties to productive use.

What Impact do Anti-vacancy and Anti-blight Ordinances Have on Local Housing Markets?   By Thomas J. Fitzpatrick, et al., | Cleveland Federal Reserve The paper discusses different state and local gap-fillers for federal foreclosure-prevention programs and responses to blight, highlighting those that have been evaluated and where there is room for additional evaluation.

Modification  Effectiveness: The Private Label  Experience and Their Public Policy Implications By Laurie Goodman | Amherst Securities This article looks at the modification experience of the private label mortgage market and quantifies the major drivers of modification success. The research shows that early modifications greatly increase success, and the tendency has been for later modifications.

What Sells When: Analyzing Price and Time Patterns for Single Family Homes to Identify Best Practices for Aggregating REO Properties for Bulk Sales By Andrew Jakabovics | Enterprise Community Partners As government and private entities contemplate bulk sales of Real Estate Owned properties (REO), the manner in which properties are made available for purchase has financial implications for buyers and sellers, as well as stabilization implications for neighborhoods. This paper compares two processes for aggregating REO, analyzing the costs and benefits of each.

Crafting Effective Mortgage Loss Mitigation Strategies By Andrew Jennings | FICO This paper discusses an application of a decision optimization framework to create effective mortgage loss mitigation strategies.

Clearing the Mortgage Market Through Principle Reduction: A Bad Bank for Housing By Adam Levitin | Georgetown University This paper examines why mortgage markets have not cleared since the bursting of the housing bubble. It considers the range of possible market clearing strategies and presents a proposal for clearing the market.

Analysis of Second Liens and a New Proposal By Chris Mayer, Edward Morrison, and Tomasz Piskorski | Columbia University The paper takes advantage of a unique dataset to estimate the extent of underwater second liens that are at risk of failing and examine the hold-up problem.

Streamlined Refinancings to Help the Housing Market and Consumers By Chris Mayer, Glenn Hubbard, James Witkin, Columbia University, Alan Boyce | Columbia University This papers proposes a streamlined refinancing program that may benefit up to 11.6 million of the 22.2 million borrowers with fixed-rate Government-Sponsored Enterprise (GSE)-backed mortgages.

Barriers to Home Mortgage Modifications During the Financial Crisis By Patricia McCoy | University of Connecticut There is growing evidence that the level of cost-effective residential loan modifications has been subpar when compared to the number of foreclosures. This paper looks at the biggest impediments to an efficient level of loan modifications.

The Performance of New Private-Label Mortgage Loan Modifications After 2009 By Susan Wachter | University of Pennsylvania, Patricia McCoy| University of Connecticut, Ren Essene | Consumer Financial Protection Bureau, and Team This paper presents a preliminary analysis of the success rate of loan modifications made in 2010 and January 2011 to residential mortgages securitized in private-label residential mortgage-backed securities.

Assessing the Housing Threat and the Appropriate Policy Response By Mark Zandi | Moody's Analytics, Susan Wachter | University of Pennsylvania This paper analyzes the scope and scale of the excess inventory and unrealized losses in the housing market and how this is impeding a recovery in the housing market and broader economy.