Friday, October 21, 2011

Mitt Romney Wants to Speed Up the Foreclosure Process

Bad Advice for Banks – For Homeowners – For the Economy

The leading candidate for the Republican nomination (sorry Mr. Cain, Mr. Perry) Mitt Romney has gone on the offensive, with remarks that lenders should accelerate the foreclosure process against Americans who have been unable to make regular mortgage payments.

In an interview published Tuesday ahead of presidential debate, Romney told Las Vegas Review Journal's editorial board that solving the foreclosure crisis would require letting banks proceed against homeowners who have defaulted on their mortgages. New investors could then rent out the homes until markets adjusted.

"As to what to do for the housing industry specifically and are there things that you can do to encourage housing: One is, don't try to stop the foreclosure process. Let it run its course and hit the bottom," Romney said.

And just in case anyone missed the message during the recent debate

Romney elaborated during the presidential debate Tuesday night. "The idea of the federal government running around and saying, `We're going to give you some money for trading in your old car...or we're going to keep banks from foreclosing if you can't make your payments," Romney said, "The right course is to let markets work."

While this was calculated to please the “I’ve got mine, I don’t care about you” bloc of Republican voters (it’s a big bloc) it is not good economic policy and not good people policy. 

The economics of foreclosures are disasters for the banks.  They end up with houses that typically need substantial repair and maintenance, have large carrying costs and are difficult to sell.  The longer the banks hold foreclosures, the most costly to them and the greater the loss on sale. Foreclosing is a self-reinforcing process. As foreclosures takes place and the houses go on the market, prices are depressed causing more delinquencies and more foreclosures.  The Dismal Political Economist has already noted how Ireland is handling the problem by letting people stay in their houses, because that is a better outcome for the banks.

In the fantasy world of Mr. Romney investors are lined up to buy foreclosed houses and turn them into rentals.  This conveniently ignores reality, that the houses may need major repairs to bring them up to code, that the investor community is lacking investors, that financing for the purchases is difficult and that renting the houses to people who need rental because they could not pay their mortgage doesn’t work when the rents are higher than the mortgage payments. 

There are substantial numbers of foreclosures on the market.  If investors were the solution, it would have already taken place.  Adding more houses to the market will depress prices, increase foreclosures and make the problem worse.  It’s just too bad Mr. Romney does not have business experience, or he would know this.

Mr. Romney is a very wealthy person.  Here's a suggestion Mr. Romney, why don't you take some of your wealth, you know, say $50 million or so and use it to borrow another $200 million and take the $250 million and buy foreclosed houses and rent them out.  What, you don't want to do that, don't think it is a good use of your money, well neither do your fellow wealthy investors either.

From a humanitarian point of view increasing foreclosures is a terrible thing.  How society is better off by making families homeless is something we have to let Mr. Romney explain.  As for Mr. Romney himself, he is the son of privilege, lack of housing was never ever in his universe.  Today Mr. Romney has several houses, including one in New Hampshire he bought specifically for running in the New Hampshire primary, and one in California he needs to spend millions on enlarging.

One of the criticisms of Mr. Romney by some who oppose his candidacy is his devotion to his Mormon faith.  Mormons in general are kind, decent and caring people (see their actions after Katrina).  While not an expert on that religion, we don't think a major, or even minor tenet of that faith is displacing people from their homes as fast as possible.  Maybe the problem with Mr. Romney and religion is that he needs more of it, not less.

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