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Housing and the Foreclosure Crisis Are Missing From the Campaign Conversation

Sales of new homes are up this fall, but a third of U.S. homeowners are underwater with their mortgages, and swing states have some of the highest foreclosure rates. Jeffrey Brown talks to The Opportunity Agenda’s James Carr and Cato Institute’s Mark Calabria for why housing hasn’t been discussed in the presidential campaigns.

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    And we turn to another kind of look at the election. We call it Missing Issues, important topics on the American agenda that neither candidate is spending much time discussing.

    Tonight, our subject is housing.

    It was the housing bubble that helped lead to the financial crisis in 2008 and has continued to drag on the national economy.

    There's been better news recently as the housing sector has shown new signs of life. Just today, a new report found sales of new homes rose 5.7 percent in September. That's the best pace since April of 2010, and continues an upward trend in recent months. And the average price of new homes has risen more than 14 percent in the last year.

    But big problems remain. More than 20 percent of U.S. homeowners are underwater on their mortgages, meaning they owe more than the value of their home, and some 950,000 homes are in the process of being foreclosed on currently.

    Last October, Mitt Romney took a largely hands-off approach to the problem.


    Don't try and stop the foreclosure process. Let it run it's course and hit the bottom.


    But by January, the Republican hopeful was quoted by The New York Times as saying, "The idea that somehow this is going to cure itself, all by itself, is unreal."

    Today, in Reno, Nev., he criticized the president's record.


    If he is reelected, I'm convinced you are going to see the values of your homes continue to bump along in the basement, and you're going to find it hard to get a mortgage as well. Because of his Dodd-Frank, it makes it very hard to people to qualify for mortgages.


    The Obama administration has made several attempts to address the housing problem, with only limited success.

    More than a million people have received a permanent loan modification through one key initiative, but that's far short of the three million-plus that it was expected to help.

    Last February, the president pushed to expand refinancing options.


    I am sending Congress a plan that will give every responsible homeowner in America the chance to save about $3,000 a year on their mortgage by refinancing at historically low rates.


    The proposal went nowhere and, like Romney, the president has spent little time discussing housing in the campaign, that despite the fact that four of the current swing states in the presidential contest have some of the highest foreclosure rates in the country.

    Meanwhile, there's action in the courts. Federal prosecutors in New York sued Bank of America for $1 billion today. Its Countrywide unit allegedly sold fraudulent mortgage-based loans to Fannie Mae and Freddie Mac prior to being acquired by Bank of America.

    Why so little focus on this? And what should the candidates be promising, if anything?

    We examine that with Jim Carr, a senior fellow at The Opportunity Agenda, a policy and advocacy group. He's a former senior vice president for financial innovation at the Fannie Mae Foundation.

    And Mark Calabria is director of financial regulation studies at the Cato Institute. He worked on housing policy as a Republican Senate staffer and at the Department of Housing and Urban Development.

    Welcome to both of you.

    I want to start with this question of the why question, Jim Carr. Why does this get so little attention?

  • JIM CARR, The Opportunity Agenda:

    Well, first of all, Jeff, thanks for inviting me, and thank you for actually having this conversation, which has been missing from the airwaves.

    I think one of the reasons is that candidates haven't been held accountable by the press, by the media. You look at the fact we have had three presidential debates and not a single question on the state of the housing market.

    I think the second thing is that the housing market has so many problems, that trying to figure out what is the fix for that market is very politically challenging and controversial. The banks have their solutions. Wall Street has theirs. Housing, consumer groups have theirs. Liberals and conservatives have theirs.

    So, it's a really sticky political environment to tread into, unless someone forces you to go there.


    I guess, Mark Calabria, the question is, why don't the candidates — the candidates don't seem to have…


    They don't want to talk about it too much. Why not?

  • MARK CALABRIA, Cato Institute:

    Well, most simply, the negatives for them outweigh the positives.

    Let's think about what some of the negatives are. Certainly, for the president, he has had a number of programs that haven't lived up to his own expectations. And I think they have been roundly criticized. So, for him, not talking about that is probably the preference.

    For Mr. Romney, you have a couple of things here that the issues are partly divisive. For instance, to go out and talk about helping one homeowner versus helping another, a number of people need help. And a number of people, they don't — they are tired of the bailouts. They want to bail out their neighbor.

    So, partly, these issues are tremendously divisive. But one of the reasons they're often divisive is many of the solutions that are offered are essentially redistributive. If you are going to help citizen A. at the expense of citizen B., citizen B. is not going to be happy with you.

    So, again, trying to stay away from that. And I will note as well a lot of the real estate industry, the realtors and homebuilders tend to be very small businesses that tend to be very pro-Republican.

    So, partly, what Romney is trying to balance is, I don't want to irk the Tea Party folks by saying I'm going to go out and give bailouts and try to lift up the housing market. But at the same time, I don't want to talk it down too much because my friends in the real estate industry, they want to see the market prices go up.


    What should people know about the state of the housing sector today? We were ticking off some of the negatives and positives. But what is your overview that we need to know?


    I think the public should know several things.

    One is that despite the good news that we're hearing, the housing market remains in deep trouble. So, for example, we have lost $7 trillion of housing equity. And we are nowhere near having regained that.

    More than 30 percent of households are upside-down on their mortgages. We have $700 billion of loans that are literally underwater, the value $700 billion of mortgage credit that is in excess of the actual value of the homes underneath.

    And so — and trying to get a loan has never been harder. Typical down payments now are 20 percent or above. Typical credit scores are 750.

    So, in a sense, the banks are overcompensating for the reckless underwriting that happened before the crisis to the point where people who are eligible for a loan just simply can't get one.

    And the other thing I would say is there's not a real focus on the value and the significance of a strong housing market to job creation and the economy. And I think that conversation is missing from this debate.


    Well, what would you add to that? And then you can start our look at what they should be talking about.



    The first thing to keep in mind, I think as far as prices, the worst is behind us. And I think we have got some declines in some markets and you have seen some increases in markets, which reminds to maybe over — I can't overemphasize every housing market is different. Phoenix is not Atlanta is not New York. And so you really do need to look at local conditions.

    But in a broader sense, one of the things that concerns me is ultimately whether it's five, six, 10 years, we will get to the point where people start to believe housing prices will never go down again.

    Keep in mind, housing can be a great investment. It can be a stable investment. It can also be a very risky investment. So, I do think people need to go into this with their eyes clear, making sure that what they're buying is really based on their needs and not based on the ability to flip it.


    Why don't you start? What do you wish you had heard in the debate?



    Or what do you wish you heard out on the campaign trail today? What do you want to hear from them?


    Well, to tell you, quite frankly, I was far more sympathetic to where Gov. Romney started out, which is this is a process that needs to work its way out. The prices need to hit bottom.

    I do ultimately think that this is fundamental a problem of, we built too much housing. And of course the only way you work off excess supply, in my opinion, is prices fall. And I appreciate and I respect that I think he first — he said that first.

    I think he started to recognize the politics of it after that. As an economist, I recognize they call economics the dismal science not because we say happy things, but because it's often messages people don't want to hear. So…


    Because that market working means a lot of people are hurt.


    It absolutely does.

    But I would say — and I agree with Jim. We have lost $6.5 trillion, close to $7 trillion in wealth. There is no magic wand. There is no way to just bring that wealth back. Ultimately, you need to have that market recover. And that is going to be painful.

    So, I would have liked to have heard is, A., the market is going to go through adjustment. That's a given. It's great thing for renters who want to get into that market. And ultimately when the prices start to look good again, that is going to present some opportunities.

    But the problem should be, how do we try to find people whose position is not sustainable? How do we try to help them transition to a better life, a better world?

    So, again, I think I would like to hear the concern of keeping the market in limbo indefinitely is not a solution. Trying to fight the fundamentals of the market is not a solution, but trying to work with the way the market is going is the direction to go.


    What would you like to hear? You would like to hear a little bit of more government proactive?



    And, actually, just to correct one of the statistics I gave, I meant to say that house prices remain more than 30 percent below their peak, and more than 20 percent of households are upside-down on their loans.

    I think if you look at the reality that we have had more than 11 million foreclosure filings, we still have 3.5 million households right now who are 60 days or more delinquent, and millions more heading that way, who are at high risk of foreclosure.

    Sort of sitting back and saying, well, we're just going to let the market work itself out is a prescription for a long, protracted, or even a pretty sudden drop in home values. The fact of the matter is the programs are not doing exactly as we'd like them to, but they are having a significant effect.

    The challenge is not that they're doing nothing. It's that we need to step up the game on the foreclosure mitigation initiatives, and really stem this foreclosure crisis.

    And then the second part is, we need not to ignore that the housing market needs to be rebuilt. The secondary market needs to be restructured.

    And we need to dive into that conversation and rebuild it, so that people who are eligible for homeownership right now actually can access the system, which millions can't do now.


    I assume that part of the politics here is one of these issues that has been with us for years, which is the degree to which individuals are responsible for their own problems, and, therefore, to what extent the government or the rest of us should be helping them, people who might have borrowed too much.


    The economist in me is, if you want to grow family wealth and family income over the long run, the way to do it is you have to make labor more productive. That's what drives wages. That's what drives income.

    And so I worry that we got into a series of essentially asset bubbles. We ran up house prices. Now the Fed and others are trying to run up stock prices. And, again, A., house prices don't make anybody more productive. They don't raise your wages in the long run.

    And, ultimately, housing is consumption. It's where you live. I think policies that try to make housing a great investment and try to make it consumption at the same time are in conflict.

    And, so, ultimately, I worry that we're investing our nation's resources in things that do not grow wages, but simply make us feel wealthier. That's not actually sustainable in the long run.


    All right, we will have to leave it there, but we have raised the questions at least, right.

    Thank you both very much, Mark Calabria and Jim Carr.


    Thank you.


    And we will examine other missing issues in the coming days.