Governor Romney's recently released housing plan is another disappointment for the struggling housing market and for American families who have been traumatized by foreclosures and falling home prices. The governor's plan lacks any new or bold actions to further kick start the housing market. In fact, it lacks any details on what he would do. Instead, the plan rewrites the history of the collapse of the housing market, predictably blaming President Obama, and then proposes to return the housing market back to the disastrous policies in place that led to the market's crash.
Governor Romney's central theme is that the housing market is broken because of an overreliance on government agencies that now back more than 90 percent of all new mortgage originations. And he criticizes President Obama for enacting multiple programs to deal with the housing crisis. If only we could get the government out of the way, so the Governor's plan suggests, the housing market would recover and all will be made well again.
Yet the oversized government role in the housing market today began under President George W. Bush. It was in response to the collapse of Wall Street's mortgage financing recklessness that propelled our economy into the worst recession since the Great Depression and triggered the largest banking bailout in U.S. history. Private mortgage lenders had careened so far off course that in 2008, the Federal Reserve had to issue regulations to prohibit lenders from making loans to consumers that could not be repaid.
In fact, millions of loans were originated with excessive origination fees and principal balances that actually increased rather than decreased with every monthly payment. Loans were also originated with terms designed to trigger unaffordable payments three years from the date of origination for the sole purpose of forcing borrowers back to the table to refinance their loans and pay another round of abusive fees. As President Bush aptly phrased it during the depths of the crisis, "Wall Street got drunk!"
President Obama inherited a housing crisis that had already resulted in more than 3 million foreclosure notices being filed in just the 24-month period prior to his inauguration. In response, President Obama has initiated several programs because the housing crisis handed to him was complex and severe. And those programs have had an impact; most economists now agree the housing market has begun to stabilize although foreclosures remain unacceptably high and uncertainty remains.
For sure, more still is needed. Tens of thousands of families that are heading toward foreclosure, for example, could potentially save their homes if they were able to access bankruptcy protection. Yet the debt outstanding on the family home is not eligible for restructuring in bankruptcy proceedings. Ironically, the debt on a luxury yacht or vacation home is eligible to be restructured. Particularly in the midst of a national foreclosure crisis, this exclusion from protection for the family home serves no public purpose. And making this change in law would not cost the American taxpayer a penny. Yet, to date, Congress has refused to change the bankruptcy code to allow relief to hard-working homeowners.
Further, millions of homeowners are both in financial distress and owe substantially more on their mortgages than their homes are worth. Home prices have fallen more than 30 percent nationally and more than 50 percent to 60 percent in certain markets. Helping borrowers, who have suffered a significant loss of income to reduce the outstanding principal on their homes, particularly where home prices have collapsed, makes since. Yet providing principal reduction is not uniformly offered, even though a federal program to accomplish that goal exists, and access to that program would not cost any new taxpayer dollars.
Rather than criticize President Obama for actively responding to the housing crisis with a variety of solutions, Governor Romney might want to encourage the mortgage lending industry to more widely and effectively use these programs. In addition, the National Council of La Raza, along with several other national nonprofits, have launched a "Home For Good" campaign that outlines several additional steps that should be taken to further stem foreclosures and rebuild the housing markets.
To be sure, Governor Romney acknowledges that the family home remains the most important investment for most families and that homeownership remains the cornerstone of the American Dream. He also recognizes that housing is a main lynchpin of the American economy. But ensuring a robust and sustainable housing market recovery will not occur by abandoning key initiatives intended to lift the housing sector from the rubble of unregulated markets.
Nor will our housing market rebound from vague platitudes about the virtues of the private market and streamlined regulations. Now is the time for concrete and realistic plans and effective action.
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Jim Carr is a housing finance and banking consultant and Closing Racial Wealth Gap Fellow with the Insight Center for Community Economic Development. Lisa Rice is Vice President of the National Fair Housing Alliance.