I recently wrote that the housing bubble creates a no-win political situation for either presidential candidate. Despite the political minefield housing policy creates, Mitt Romney has published a very brief and vague plan he hopes will excite voters. It won’t.
For millions of Americans, homeownership is about more than just a place to live. For many, owning a home is the fulfillment of the American Dream. Yet today, the dream of home ownership is out of reach for many Americans as a result of President Obama’s failed policies and stalled economy.
Owning a home is oftentimes the most significant investment a family makes during their lifetime. The housing crisis of the last few years has reduced the value of this investment at a time when middle-class families already continue to struggle in an economy stuck in first gear.
A big problem with the updated American Dream is that owning a home became conflated with saving for retirement or supplementing one’s income. A home should not be viewed as a speculative investment because that leads to speculative finance and price volatility.
The only path to a healthy housing market is a healthy economy, but a housing recovery is central to a healthy economy. President Obama promised a much healthier economy by now, but the economy he promised is nowhere to be found. Instead, our nation’s economy remains stuck with unacceptably high unemployment and economic growth too slow to ever reach a full recovery. The bottom line is that the President’s policies to improve the economy haven’t worked.
This is the central theme of the Romney campaign. Are Obama’s policies to blame, or did Bush and the Republicans who where in charge during the 00s screw things up so badly that four years of good policies under Obama were not enough to turn the tide? How the public answers that question will largely determine how they will vote.
Under President Obama, home prices have fallen, homeowners have received more than 8.5 million foreclosure notices, and 11 million Americans owe more on their mortgages than their homes are worth.
President Obama’s only plan to address the housing crisis was the same plan he used to try to fix the economy: spend more taxpayer money on big-government programs. To address the housing crisis, President Obama rolled out an alphabet soup of more than ten housing finance programs …
Obama began all these programs due to political pressure within his own party to do something — anything — as long as it placated the sheeple. The success of Obama’s policies were rooted in the failure of any of these programs to do anything substantive. In other words, Obama’s housing policy succeeded wildly by failing spectacularly.
If Romney is proposing eliminating or curtailing this alphabet soup of programs, it will restart the foreclosure machinery and could crash home prices. Although I may think that’s the right thing to do, it won’t be politically popular.
rather than offering a real solution.
Any what solution would either Romney or the Republicans offer? The only smart and courageous proposal to come from the housing bubble was when Romney said to stop meddling in the housing market and let the process go forward. Unfortunately, soon after he said this, he felt the stinging criticisms of angry loanowners and abruptly rescinded his statements. This policy statement does nothing to get the wheels of progress turning again. What we need is several million more foreclosures to reduce people’s debts and recycle the homes into the hands of people who can afford to make the payments.
Meanwhile, credit-worthy borrowers are struggling to get a loan as a result of the uncertainty caused by the President’s policies.
That’s just bullshit. credit-worthy borrowers have no problem obtaining loans. People who aren’t credit worthy have an enormous problem obtaining loans, but giving loans to those who weren’t credit-worthy was part of the problem that caused the housing bubble.
By continuing to insist on a government-centric approach to housing and to the economy more generally, President Obama has hamstrung the economic recovery and slowed the recovery of the housing market.
Right now taxpayers are on the hook for almost 90 percent of all new mortgages. The two government-sponsored government housing corporations (Fannie Mae and Freddie Mac) fueled a predictable disaster and President Obama has done nothing to reform these entities.
While the government is on the hook for almost all new mortgages, this was done to prevent an even deeper and more catastrophic collapse. If the free market had been allowed to operate, interest rates would have risen in 2007 to compensate lenders for market risk. Instead interest rates were cut in half to make the bubble-era prices financeable. No private lender would have loaned money at such low interest rates in 2007-2012. The risk was far too great. Only explicit government backing made the low interest rates and corresponding large loan balances possible. For better or worse, this saved the housing market from an even deeper correction. And since the GSEs were instrumental to propping up the housing market, the government was limited in what it could do to reform them. One thing the administration has done is it ordered the GSEs to wind down their portfolio of holdings which they are now doing.
Understanding that a healthy economy is the key to a healthy housing market, Mitt Romney has an economic plan that will result in more jobs and more take home pay. Independent economists estimate that the plan will create 12 million jobs by the end of his first term, an essential element to ending the housing crisis.
A Plan To End The Housing Crisis
- Responsibly sell the 200,000 vacant foreclosed homes owned by the government
- Facilitate foreclosure alternatives for those who cannot afford to pay their mortgage
- Replace complex rules with smart regulation to hold banks accountable, restore a functioning marketplace and restart lending to creditworthy borrowers
- Protect taxpayers from additional risk in the future by reforming Fannie Mae and Freddie Mac
In towns across the nation, foreclosed homes sit empty, depressing the value of entire neighborhoods. The government owns about 200,000 of these homes, or almost half of all of the foreclosed homes in the country. Mitt Romney will responsibly get the government out of the homeownership business and return these vacant homes to productive uses that will increase neighboring home values.
How does he plan to “responsibly” sell these homes? Speedy liquidation would crash house prices, so that probably doesn’t meet his definition of responsible. Currently, the GSEs and HUD are selling their inventory largely to owner-occupants to prop up the flagging home ownership rate. According to HousingWire, “Romney has previously said he supports renting more of these homes out or selling them to investors. But again, these ideas first came from the Federal Housing Finance Agency and the Obama administration. Pilots were launched this year.” What new ideas does Romney have that Obama is not already doing?
Foreclosures are a difficult, long, and expensive process for homeowners and lenders alike. Mitt Romney will facilitate creative alternatives to foreclosure for those who cannot afford to pay their mortgage.
These alternatives will minimize the instability of communities hard hit by the housing crisis, preserve the credit of homeowners, and can help keep families in their homes.
What alternatives are these? None of what he proposes is possible. The people who aren’t paying their mortgage need to be foreclosed and evicted, and their credit should be damaged. To do any less promotes future imprudent borrowing.
Since the housing crisis, the government has produced more than 8,000 pages of new rules and regulations. The problem is that they are poorly designed, and have made it harder for people with good credit to get loans. Mitt Romney will put in place smarter regulations to restore a functioning marketplace that holds banks accountable and restart lending to creditworthy borrowers.
Smarter regulations? Give me a break. The regulations we have were a result of a thousand compromises necessary to get a bill passed. While the final product could certainly be improved upon, proposing “smarter regulations” does no good if nothing gets passed. Plus, it sounds insufferably arrogant and somewhat foolish for Romney to state he knows what a smarter regulation might be.
And when did Republicans start supporting more government regulations? According to HousingWire, “Romney then criticizes the administration for making it too difficult for borrowers to access credit. He points to “more than 8,000 pages of new rules and regulations,” which he himself actually backs. He told TIME Magazine in an issue released this month that the risk-retention rule under the Dodd-Frank Act was a good idea. Yet, many lenders have said they are waiting on it and the qualified mortgage rule to be finalized before mortgage credit can be expanded.”
Any serious plan for ending the housing crisis must address its root cause. Two government-sponsored companies known as Fannie Mae and Freddie Mac were at the center of the housing crisis.
No, they were not. This meme continually circulates through right-wing propaganda, but it has been refuted on many occasions by analysts looking at real facts and data. The GSEs were losing market share to private asset-backed securities investors who were funding all manner of toxic loans products under the false belief that house prices could never go down. The GSEs got in trouble because they loaded up on these toxic securities late in the bubble to regain market share. The GSEs were not the “innovators” who created and funded the toxic soup that poisoned the housing market. The GSEs did buy enough toxic crap later to go bankrupt, but they were not the driving force behind the “innovations” that fueled the housing bubble.
Mitt Romney will reform these government-sponsored companies to protect taxpayers from additional risk in the future by ensuring taxpayer dollars in the housing market are replaced with private dollars.
Specifically, how will he do this? As HousingWire noted, “The trick will be getting this idea through even his own party, many of whom are backed by special interest groups from the industry such as the National Association of realtors and the Mortgage Bankers Association. All have stressed the need for at least some government backstop to ensure the liquidity of old returns to the housing market.”
From what I read, Romney’s housing plan doesn’t cover much new ground. Publishing this plan is likely a result of the perception that the Republicans are losing on the housing issue. They are, but not through any fault of their own.
Bottom-Callers for Obama
The real victor in the political tussle over housing is Barack Obama, and not because his policies are having any positive effect. In fact, I posit that Obama’s housing policy succeeded wildly by failing spectacularly. The real reason Obama is starting to win the politics of housing is due to the chorus of bottom callers who are inadvertently coming to his aid. By far, the best thing for Obama is for the electorate to believe things are getting better. Obama desperately needs voters to believe the economy is improving, and more importantly, he needs voters to believe their financial condition is improving. The belief that the bottom is in for the housing market helps Obama on all fronts. Whether or not the members of the bottom-calling chorus set out to be Obama supporters, they are doing more to get him reelected than anyone on his campaign staff.
If you search Google News for the term housing bottom, the headlines it turns up are overwhelmingly positive. You get stories with cheerleading headlines like U.S. home prices make biggest jump in 6 years or Here’s More Evidence That Home Prices Have Hit Bottom which has 231 related news stories. The collective Kumbaya of the bottom callers seems intent on squelching all dissenting opinion. Obama must be thrilled.
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Proprietary Irvine Housing News home purchase analysis
$550,000 …….. Asking Price
$615,000 ………. Purchase Price
12/6/2004 ………. Purchase Date
($65,000) ………. Gross Gain (Loss)
($49,200) ………… Commissions and Costs at 8%
($114,200) ………. Net Gain (Loss)
-10.6% ………. Gross Percent Change
-18.6% ………. Net Percent Change
-1.4% ………… Annual Appreciation
Cost of Home Ownership
$550,000 …….. Asking Price
$110,000 ………… 20% Down Conventional
3.51% …………. Mortgage Interest Rate
30 ……………… Number of Years
$440,000 …….. Mortgage
$111,539 ………. Income Requirement
$1,978 ………… Monthly Mortgage Payment
$477 ………… Property Tax at 1.04%
$150 ………… Mello Roos & Special Taxes
$138 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$139 ………… Homeowners Association Fees
$2,881 ………. Monthly Cash Outlays
($309) ………. Tax Savings
($691) ………. Equity Hidden in Payment
$123 ………….. Lost Income to Down Payment
$89 ………….. Maintenance and Replacement Reserves
$2,093 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$7,000 ………… Furnishing and Move In at 1% + $1,500
$7,000 ………… Closing Costs at 1% + $1,500
$4,400 ………… Interest Points
$110,000 ………… Down Payment
$128,400 ………. Total Cash Costs
$32,000 ………. Emergency Cash Reserves
$160,400 ………. Total Savings Needed
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