Thursday, July 03, 2008
What are the politics of the housing meltdown? Foreclosure agony is undoubtedly a campaign issue, but the political question remains: What do the voters want their leader to do about it? Then there's the economic question: What can a president do about it -- other than ask taxpayers to bail out people who took on more debt than they could handle?
More than 3 million homeowners currently find themselves in mortgage trouble, and another 2 million are expected to join them. Among the 10 states with the highest mortgage-foreclosure rates, half are election battlegrounds. They are (in order of foreclosure pain) Nevada, Florida, Michigan, Colorado and Ohio.
Only a few Republicans -- including John McCain last March but not now -- hold that the government has no business bailing out people who essentially gambled on real estate. In a turnabout, McCain has called on the Federal Housing Administration to direct some borrowers into lower-cost, government-backed mortgages. He's offering to spend $10 billion aiding subprime borrowers.
Congress has put together a similar package, which bean counters say would rescue 400,000 borrowers. That's a pretty small lifeboat, given the numbers on the sinking ship. But it is designed to help those holding mortgages with the greatest chances of survival.
Barack Obama would do more. He'd put $10 billion into a fund to prevent foreclosures. And he'd give another $10 billion to cities to buy foreclosed houses.
This is a tricky issue. Polls show considerable resistance to a government bailout of mortgagees. Over a third of homeowners don't owe any money on their dwellings, and the great majority who do are keeping up with payments. At the same time, debris from the housing collapse is hitting a lot of bystanders -- from retailers to carmakers to homebuilders.
But an unfortunate truth lies at the core of the housing crisis: There's no golden age to go back to. The real-estate-fueled economy was based on a speculative bubble, fed by low interest rates. There are few reasonable alternatives to just letting house prices fall to levels that ordinary folks can afford. (Industries that rely on Americans' taking on ever more debt ought to rethink their business model.)
On public policy, the best ideas focus on ensuring that this doesn't happen again. This requires a two-pronged approach: Make the creeps who fooled or scammed borrowers with their abusive loans pay for their sins. And regulate the industry to behave better in the future.
Many of the homeowners facing foreclosure were good people caught up in the real-estate frenzy, and not a few of them were cheated. Note that the top three states for reported fraud in single-family home loans are Florida, Nevada and Michigan.
McCain has called on the Justice Department to go after mortgage companies that committed lending crimes. And Obama's foreclosure-prevention plan would be funded by penalties on crooked lenders. All nice.
Obama would also empower bankruptcy courts to modify mortgage agreements. This is an excellent plan. (House and Senate lawmakers are already working on it.) Make mortgage companies share the pain of their reckless lending, and you'll see a whole change in attitude.
Many otherwise careful borrowers were not equipped to trek through the snake-infested contracts their lenders handed them. Obama wants new disclosure rules to ensure that reasonably intelligent homebuyers know what they're getting into. Also good.
The most useful proposals are future-oriented. Asked how they would assist hurting homeowners, candidates understandably want to offer something -- doubly so when campaigning in the hardest hit places. But Americans must focus more on rebuilding the American economy, and not on a fantasy.
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