Stucknation: Obama Takes on Underwater Mortgage Crisis, But is it Too Little, Too Late?

House in foreclosure.

In Washington, both national political parties play chicken over the debt ceiling. They use the moment of great national anxiety over the teetering economy to stoke their bases and raise as much money from their corporate sponsors as they possibly can. The two party bilking system is doing what it has always done, serving itself.

While they were golfing the voracious Godzilla like debt monster that hangs over them now, had already devoured the home equity and financial security of more than 20 million Americans households. This growing monster is hungry.

Depending on whose statistics you use, anywhere between 20 to 25 percent of American households with a mortgage find themselves financially underwater, struggling to pay off loans on homes they now owe more on their homes are actually worth. In some municipalities in foreclosure hotspot states like Nevada fully half of all homeowners are “under water”.

While the Treasury Department focused like a laser on the capital and equity markets, the steady drop in home values only made local noise. But newsflash - a nation is made up of locales.

One member of the Obama cabinet who seems to know this is Housing and Urban Development Secretary (and New York native) Shaun Donovan. Despite the 45 year-old HUD Secretary's relative youth, his resume includes private sector, non-profit and municipal government as well as previous Federal experience, all in housing.

Donovan says the Obama Administration is pushing on several fronts to try and help as many Americans stay in their homes as possible. He says he knows that there will be no recovery without stabilzing the housing market.

This month he threw out a lifeline to any of the 14 million plus unemployed Americans who have a Federal Housing Administrative mortgage. He extended the length of time an unemployed homeowner could defer mortgage payment from four months to a year.

"Any FHA lender is required to work with an unemployed borrower to evaluate how to keep them in their home," Donovan said in an interview with WNYC. "And if it is the best option for them to defer payments for that homeowner they are required to do it for twelve months at least or until they find a job."

"What we found is that the average  spell of unemployment that families are facing today is simply longer than the old four months standard that we had," said Donovan. "Fully 60 percent of the unemployed are unemployed for at least three months, and 45 percent are unemployed for more than six months and so we thought it was very important to set a standard in all of the administration's programs that twelve months is the right standard."

So where have these guys been? We're three years out from 2008.

Donovan says both he and President Obama are disappointed in the lack of progress on the "recovery". And he says there's a direct link between bringing down unemployment and stabilizing the housing market.

"We have made a lot of progress on loan modifications that keep people in their homes," he said. "Five million families roughly since April of 2009 have been able to get their loans modified and stay in their homes."

Donovan says up until now, one place the administration has not been able to make a dent is in getting banks to reduce the existing balances on underwater mortgages. He says relief on that front should be on the way as part of the pending settlement between the country's big banks and the government for their past behavior - that allegedly involved widespread mortgage document forgery and deceptive trade practices.

Bank of America, Wells Fargo, JP Morgan and Citigroup are all sweating out a universal resolution with the government, and the nation's 50 attorneys generals over the robo-signing.

"While we haven't seen as much progress on reducing the balances of those [underwater mortgage] loans, all I would say is 'stayed tuned'," said Donovan. "That is clearly part of the discussion  in the settlement we have been negotiating."

Donovan says all the big players have to try and help stabilize the housing sector. "They should be doing more to help unemployed borrowers," Donovan said.

"I am determined, the president is determined, that we get a settlement not only that is going to hold these servicers accountable, but also that provides real assistance to families that didn't get the assistance they should have gotten, that they were required to get. And we think it is a critical step in helping strengthen the housing market so that we can see a sustained recovery."

While across the country, the underwater mortage rate accounts for roughly one in four mortgages, in some hotspot states like Nevada there are communities where fully half of all households are holding a mortgage that is more than the current value of their home.

Donovan gets that foreclosure is a kind of contagion that can kill neighborhoods.

"Main Street matters, and we are going to continue to focus on this and do more for our unemployed borrowers because it is good for those families," he said. "Its also good for their neighbors. Even if your home isn't in default, if you have a family living next door that loses their home, the value of your home goes down. Multiply that a million times what you have is real strength for the housing market if we can keep people in their homes."

But for way too many Americans, the Obama reset comes too late. As towns, counties and states lay off tens of thousands Main Street may not be as receptive to Obama Hope version 2.0.