Romney Gets One Right

Supposedly, Mitt Romney gave a "political opening" to Obama when he suggested that the housing mortgage crisis should be allowed to run its course. I don't see how. As is typical, the White House obfuscates on this issue and makes a spurious argument. Here is Jay Carney:

What we firmly do not believe is that the answer is not to simply let the housing market bottom out and let investors come in and fix the problem. That’s not a solution. That’s a solution that basically says to middle-class Americans who have been responsibly paying their mortgage and who, through no fault of their own, have seen their economic situation get quite desperate because of the prices in the housing market that you’re on your own — tough luck, I’m not going to help you. That’s not this President’s approach.

The problem isn't the people who responsibly paying their mortgages. That sets up a straw man that doesn't exist to make it sound like homes are being seized illegally. The mortgage industry certainly bears investigation for certain practices, but for the most part, homes being foreclosed are in arrears. Whether the mortgage holder such as a bank, thinks it would be better to foreclose or renegotiate should be decided on a case by case basis. When a house is "underwater" the mortgage holder is going to take a haircut either way, so I don't see how they are not sharing in the losses.

The other issue is purely economic. Here is what the administration proposes.

The key to the new approach, hashed out by Housing and Urban Development Secretary Shaun Donovan in recent weeks: allowing homeowners to refinance at lower rates regardless of how far their home values have fallen, while reducing or eliminating prohibitive refinancing fees.

Sounds great, but the economic incentives don't add up for most homeowners who are underwater and behind. If someone has a mortgage on a home with a loan amount of $500,000 against a home valued at $350,000; it doesn't matter if the mortgage interest rate is 7% or 4.5%, there is little incentive to pay back the loan. Plus, many of these people can't repay, even if on favorable terms.

We have commented on this situation and our message remains the same, the sooner housing prices fall to market clearing prices to attract investors, the sooner we will start an economic recovery. Mitt Romney is essentially saying the same thing.

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.

I like his competent understanding of the economy.