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New top Realtor sees a rebound, but full recovery years away

As a Realtor in Orange County, Calif., Gary Thomas lives at the epicenter of the past decade's epic housing boom and bust that is only now beginning to release the economy from its withering grip.

It was in that county and the broader Los Angeles market that many of the most notorious subprime mortgage lenders operated, providing "liar loans" and other risky financing products to people across the country with little income or the wherewithal to pay their housing bills when they ultimately came due.

Mr. Thomas recalls how the abusive loan schemes invented by the L.A.–area mortgage brokers and their backers on Wall Street turned what might have been an ordinary housing downturn into the biggest housing and financial collapse since the Great Depression.

Today, those loose lenders are long gone, banished and bankrupt, while millions of abandoned homes they financed have been taken over and resold by the banks. Mr. Thomas believes the troubled housing market in California and elsewhere in the country is finally inching its way back to health, though he warns it may take another seven years for it to completely shake off the effects of the recession.

Before being elected president of the powerful National Association of Realtors last year, Mr. Thomas personally experienced the devastation of the housing crisis when deep losses in California's ravaged markets forced him to file for corporate bankruptcy in 2011 and personal bankruptcy reorganization a year later.

As someone so steeped in the wild ups and downs of the market, he knows there's no guarantee that the greatly shrunken market will regain the lofty heights it attained at the peak of the bubble in 2006 and 2007, though it has made a good start. Much could go wrong, starting with what he sees as some wrongheaded reforms being eyed in Washington.

Attempts to entirely eliminate the government guarantee on standard 30-year mortgages currently provided through Fannie Mae and Freddie Mac, for example, would thwart the recovery, he said.

"First, do no harm," he cautioned members of Congress as they grapple with the question of what to do with Fannie and Freddie, the once-insolvent mortgage giants taken over by the government in 2008 that recently turned profitable again and started returning some of their $180 billion in bailout funds to the government.

"You can't just pull the plug on them," he said, as Fannie and Freddie, along with the Federal Housing Administration, currently guarantee more than 90 percent of the mortgages being written today.

The return of profitability, which enabled the government to reap a windfall $59 billion dividend from Fannie Mae this month that helped to dramatically lower the deficit, provides Congress with some time to work out a "rational" solution for replacing Fannie and Freddie that includes a more limited government "footprint" in the housing market but maintains some government "backstop" for mortgages, he said.

Mr. Thomas dismisses the argument by many conservatives that Fannie and Freddie deserve most of the blame for the financial crisis because they had a mission to encourage lending to minorities and borrowers with lower credit ratings, and pursued that mission through purchases of higher-rated subprime securities.

"That's baloney, and I'm a Republican. They were not the cause of the crisis, though they took the brunt of it," he said. "Are they really going to kill the goose that lays the golden egg?" he asked of Republican proposals to eliminate the agencies.

While some Republicans have been more open privately to maintaining a limited government role in the mortgage market, Mr. Thomas said Democrats "have been more friendly" to the Realtors' agenda.

Mr. Thomas, whose 1.2 million-member association is considered one of the largest and most influential lobbying forces in Washington, is also battling another idea being considered by some conservative lawmakers — eliminating the popular mortgage-interest deduction as part of a broad reform of the tax code aimed at closing loopholes and slashing tax rates.

"If they did away with the mortgage-interest deduction, home prices would fall another 15 percent," he said. "Do you think the economy could take that?"

Mr. Thomas said typical homeowners he has talked to are shocked that some legislators are even considering cutting the deduction. "The average American has decided it's important to them," he said.

While he says he wants to remain open to what House Ways and Means Committee Chairman David Camp, Michigan Republican, comes up with in his tax reform bill, Mr. Thomas and his army of Realtors in town for an annual convention last week trooped up to Capitol Hill to deliver their message. One banner said it all: "Homeownership is not a loophole."

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