Foreclosed for Business

Before the Republican presidential primary debate in Nevada, 2012 GOP frontrunner Mitt Romney told the editorial board of the Las Vegas Review Journal that government shouldn’t be in the business of trying to help families about to lose their homes. “Don’t try and stop the foreclosure process,” he said.

Former pizza magnate Herman Cain claimed following the debate that the best way to help homeowners facing foreclosure is to “get government off the back of the banks.” Former Speaker of the House Newt Gingrich’s prescription for aiding homeowners, meanwhile, is to repeal the Wall Street reform law that Congress passed last year.

Listening to the GOP presidential candidates, you’d never know that Nevada was the state hardest hit by the bursting of the housing bubble, that it has led the nation in foreclosures for 56 consecutive months, or that last year one in nine Nevada households received a foreclosure notice.

The one time that foreclosures came up during the debate, none of the candidates on stage were able to provide a coherent policy for keeping families in their homes. Instead, they took the opportunity to get into a spat over who had or had not supported the reviled $700 billion bank bailout. Then, only Rep. Ron Paul (R-TX)—the staunchest libertarian of the bunch—suggested that maybe homeowners should have been bailed out rather than the banks.

The lack of constructive ideas for addressing the housing crisis is a sad byproduct of the anti-government zeal that has climbed to new heights within the GOP. But if they weren’t so blinded by the Tea Party’s light, Republicans would have a legitimate opening to criticize the Obama administration, as its efforts to stem ongoing foreclosures have fallen woefully short of its goals.

The administration, to much fanfare, rolled out a series of foreclosure prevention programs meant to help millions of Americans stay in their homes. Instead, those programs have flopped, done in by design flaws, bank intransigence, and continual rule changes that have made the process nearly impossible for homeowners to maneuver.

The Home Affordable Modification Program, which was supposed to lower monthly mortgage payments for three to four million homeowners, has resulted in only 800,000 permanent modifications, with more borrowers getting booted out of the program than successfully navigating their way through it. The Home Affordable Refinancing Program was meant to help five million homeowners take advantage of low interest rates; it’s only reached 800,000 so far.

And it’s not like there’s a dearth of foreclosure-prevention programs that Republicans can get behind. For instance, Nevada Gov. Brian Sandoval (R), after explaining that, in his view, Romney “doesn’t fully understand” the foreclosure crisis in his state, touted Nevada’s use of mortgage mediation.

In states that have mediation programs, banks are required to meet with face-to-face with a borrower before finalizing a foreclosure, in order to make one last effort at brokering a deal to keep the borrower in his or her home. Where they’ve been implemented, mediation programs have been hugely successful.

In Connecticut, where a mediation program was initiated under Republican governor Jody Rell, 60 percent of borrowers who enter the program end up keeping their home, while another 15 percent benefit from short-sales or other forms of debt forgiveness. Philadelphia’s mediation program also keeps 60 percent of participants in their homes. In Nevada, nearly half of participants keep their homes, while 90 percent avoid foreclosure.

Mediation is a simple solution that Republicans have already shown they can support. And the truth is that economic recovery is going to be a much tougher slog as long as foreclosures continue unabated. Foreclosures not only drag down the home values of entire neighborhoods, but they depress other investments. According to research by economists Atif Mian, Amir Sufi, and Francesco Trebbi, “foreclosures were responsible for 15 percent to 30 percent of the decline in residential investment from 2007 to 2009 and 20 percent to 40 percent of the decline in auto sales over the same period.”

The Obama administration, realizing that housing is one of the few areas of the economy it can boost without Congressional approval, released an overhaul of HARP last week that will allow more homeowners to refinance their mortgages, thus freeing up money for them to spend elsewhere. Such a step is supported by Columbia’s Glenn Hubbard, who is advising Romney on economic policy.

So can Romney come around and lead the GOP pack into producing some constructive solutions for the housing crisis? Or will he and the rest of the Republican field continue to pretend that housing is a problem that will simply go away if they manage to ignore it long enough?

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