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July 29, 2014

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No one in the Republican field is talking about the housing crisis

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Jim Cole / AP

Republican presidential candidates, from left, former Utah Gov. Jon Huntsman, Rep. Michele Bachmann, R-Minn., Texas Gov. Rick Perry, businessman Herman Cain, former Massachusetts Gov. Mitt Romney, Rep. Ron Paul, R-Texas, former House Speaker Newt Gingrich and former Pennsylvania Sen. Rick Santorum are seen at the debate at Dartmouth College on Tuesday, Oct. 11, 2011, in Hanover, N.H.

When the Republican presidential field debated economic policy in New Hampshire last week, the word “foreclosure” was uttered once. One time.

And that lone mention by former Utah Gov. Jon Huntsman accompanied no prescription for the crisis that has reached epidemic proportions in Nevada and that economists agree is among the biggest drags on the economy. Rather, Huntsman mentioned it in a description of the pain felt by Americans.

That’s unlikely to change when the GOP presidential candidates debate Tuesday in Las Vegas, a city ravaged by the bursting of the housing bubble. Republicans running for president have referred to foreclosures as an ugly symptom of the economic recession but offered no remedy.

Nevada leads the nation in the rate of foreclosures, with nearly 60,000 foreclosed homes glutting the market, further depressing home values and scarring neighborhoods. Last month, one in every 118 homes received a foreclosure notice, according to RealtyTrac. The owners of thousands more homes — 60 percent of the state’s homeowners — are so underwater on their mortgages that their houses may never again be worth what they owe.

“You’re definitely in a league all your own,” said Mark Calabria, a fellow at the Cato Institute, a libertarian think tank, who specializes in financial and real estate market public policy. “It’s a unique situation.”

While Nevada’s suffering is at the extreme, Federal Reserve Chairman Ben Bernanke warned Congress this month that the nation’s economic recovery may depend on a “clear path to a new housing finance system.” Underwater homeowners are “poorer, and less willing to spend,” he told the Joint Economic Committee.

Yet the presidential contenders have been reticent to take on the issue.

Former Massachusetts Gov. Mitt Romney uses the word “foreclosure” once in his 160-page economic plan. He addressed the housing industry just briefly in a single paragraph calling for the repeal and reworking of the Dodd-Frank Act, which reformed financial industry regulations in the wake of the 2007 collapse.

Romney doesn’t appear to have much competition when it comes to creative ideas for dealing with the foreclosure crisis.

If his opponents address it at all on their websites or in their rhetoric, it’s to join the GOP chorus for eliminating or reworking Dodd-Frank — a move that conservative and liberal economists agree may be necessary but would do little to address the existing foreclosure problem.

Huntsman’s economic plan calls for privatizing Fannie Mae and Freddie Mac and letting “the housing market settle in order to see sustainable growth.”

U.S. Rep. Michele Bachmann, R-Minn., urges the “repeal of the jobs and housing destruction act, also known as Dodd-Frank.” Former U.S. Rep. Newt Gingrich also urges the law’s repeal.

Herman Cain, Texas Gov. Rick Perry and former U.S. Sen. Rick Santorum so far have no formal policy statements on housing.

And libertarian-minded U.S. Rep. Ron Paul, R-Texas, advocates a completely hands-off approach.

“He was the only presidential candidate who predicted that federal intervention would lead to the housing bubble and subsequent crisis,” said Paul’s spokesman Gary Howard. “Dr. Paul believes that the only way a correction can occur is if the surplus housing is cleared from the market, and the federal government stops trying to prop up artificially high home prices.”

Some economists agree with the free-market approach, even as they acknowledge it may seem like a heartless way of dealing with the crisis.

“You really can’t fight the fundamentals of supply and demand,” Calabria said. “How do you move vacant and half-built homes? To me, the only solution is let prices get to the level (where) these things start to look attractive.”

Calabria argued against loan modification programs, even those that would address underwater homeowners.

“That wealth is gone,” he said. “If you take a dollar from the lender or a dollar from the taxpayer and give it to the borrower, it does not create wealth. It just redistributes it.”

Further government intervention just prolongs the inevitable slide of housing prices to a market-determined level.

But other housing experts argue the foreclosure crisis is so severe that it brings other dangerous problems, such as blight, crime spikes and further loss of wealth for those being responsible with their payments.

“The cost of letting natural forces take place is enormous,” said Nasser Daneshvary, director of the Lied Institute for Real Estate Studies at UNLV.

“Yes, the market ultimately will clean it up, but it might take 10 years. Meanwhile, prices keep declining, even healthy, no-default house values will keep going down. On foreclosures, people don’t take care of the property. We are causing waste for the entire economy.”

The Obama administration’s approach to addressing the foreclosure crisis has been to offer a variety of deferments, moratoriums and loan modifications. Daneshvary said those policies have done little to address the more fundamental problem — particularly in Nevada — of underwater homes.

Nationally, 70 percent of the 2 million loan modifications in the past two years have ultimately gone to foreclosure, Daneshvary said. Only 4 percent of those modifications addressed principal balances.

A principal reduction program, in which both the owner and the lender share in any appreciation above the marked-down price, could stem foreclosures, Daneshvary said.

Economists on both sides of the political divide agree that a simple repeal of Dodd-Frank would fail to address the foreclosure crisis.

Bachmann, Gingrich and others believe the regulations have made it more difficult for new homebuyers to obtain mortgages, preventing them from stabilizing the market.

That may be one factor, Calabria said. But regulations like Dodd-Frank are acting as a broader drag on recovery, he said.

“It doesn’t have much to do with the foreclosure and housing situation of today,” Calabria said.

UNR economist Elliott Parker agreed: “Any time you establish a set of regulations there are unintended consequences. There may be banks that who can’t lend now or some people who can’t get loans. But to offer that as a solution is pretty empty and it completely ignores the magnitude of the problem that we have today.”

The magnitude of the problem — coupled with the fact it is a politically risky area — may be holding policymakers back from addressing it in a forthright way.

“To really fix the problem, not just for the marginal people (close to default), but for everybody, it’s an enormous amount of money,” Parker said. “But the way we are doing it now is almost like giving people incentives to get in trouble.”

Others described the foreclosure crisis as a no-win situation for Republican candidates, leading them to avoid the issue altogether.

“To deal with this, some people have to lose,” Daneshvary said. “The financial sector benefited tremendously on the upswing and will end up losing anyway, but politicians don’t want to force them to take some losses.”

On the other side, the electorate is tired of bailouts, Calabria said.

“It’s bailout fatigue,” Calabria said. “Why am I bailing out the banks? Why am I bailing out the guy next door that bought more house than he can afford? That type of anger is felt across the board, but much more strongly felt across Republican circles.”

And then there’s the weariness factor.

“People are just tired of dealing with it,” former Assembly Speaker Barbara Buckley, D-Las Vegas, said. “Nobody is talking about it. But the longer this crisis goes on, the more time we’re not recovering. And it affects everybody. We really don’t need another house that is empty in Las Vegas.”

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  1. The Republicans aren't talking about ANYTHING that deals with the problems of the Country. Most of their time is spent bashing Obama and the other Republican candidates. Herman Cain is up in the ranks now because he actually has a plan, a strange one, but a plan nonetheless. The others.....????

    Why is Bachman still hanging in there??

  2. Everyone ought to look at Casino Kid's You Tube URL. And everyone ought to understand that the good intentions expressed in it were just one leg of our current problems. Another leg was not understanding that lack of oversight could and would lead to excess. And the third leg of our current problems was that there were, and are, fundamental changes in the foundations of our economy that have been occurring for some time, changes such as the aging of the Boomers, followed by two smaller generations, and changes in business management and financial analysis, that would essentially reduce demand for housing of the kind we were building and buying, and shift overseas the ability to pay for "the American Dream". So, to make a long story short, we ended up with oversupply and underdemand -- by a combination of well-meaning government policies and unchecked private greed -- and both the Rs and the Ds enabled and fostered this.

  3. Of course they won't talk about the housing crisis. Mainly because everything they stand for will end up making it worse or causing an even more catastrophic one later.

    The Republicans during those debates go for safer areas like attacking President Obama and his entire administration constantly and relentlessly. And that's fine. Because that's all they are good at...complaining. In the Republican Party field of dreams nowadays, it's far easier to slap a donkey than it is to move an elephant.

    How dare people talk about problems? The loud voices in their heads that tell them how awesome they are help drown out everything else. They only march to their own drumbeats. A good example of that is the laser sharp focus Mr. Cain has on his Plan 999 From Outer Space. He blathers about his economically unachievable cure all non-stop. Most economics have blasted it apart as nonsense. But Mr. Cain continues and will even say it helps indigestion cases if he can get away with it.

    We'll see more of their idiocy. And soon. Because the Republican Party is no longer a shadow of its former self. They have went extreme right wing. The days of moderate Republicanism is over with. The Tea Party, of every faction, have all went down on record that THEY will choose the candidate for President, not the Republicans. Add to the mix that the Republicans are so incredibly mystified about this takeover which drowns out reason, they completely lock up and cannot make decisions anymore. I have seen instances where Fox News, Rush Limbaugh, Sean Hannity and other neo-conservative nutballs actually direct their policies and even perform think tank efforts for them.

    It's all incredibly stupid. Even the debates are yawners because you know what stupidity they will say...even before they say it.

    Even more amazing is how they have gone out of their way to make fun of and try to marginalize the Occupy Wall Street movement. My God, don't they understand they are ridiculing an overwhelming majority of Americans who are screaming enough is enough?!? And they want votes later? Don't make sense to vote Republicans into power who will just create more of the same ole same ole situation that caused the people to rise up and take it to the streets and protest even more. It's like a cycle that will never end, but only contribute to more destitution, misery, unnecessary sacrifice, joblessness and economic woes that will reach even more plummeting depths.

    I still say the best thing to do is give them a wake up call at the 2012 elections. Vote ALL them idiots out of power. Because all indications show they are the root of the problems, not anywhere close to solutions. They need to sit on the sidelines for quite awhile.

  4. "Calabria argued against loan modification programs, even those that would address underwater homeowners. "That wealth is gone," he said. "If you take a dollar from the lender or a dollar from the taxpayer and give it to the borrower, it does not create wealth. It just redistributes it."

    Damon -- maybe foreclosures aren't mentioned in the debates because the question isn't being asked. And Rep. Paul has mentioned it in his recent interview by Jon Stewart --

    "The regulators got bailed out, the middle class lose their jobs and their houses. All this desire to trust in the government to make sure that big corporations won't hurt them actually is a backfire on them."

    Like most you only scratch the surface of this foreclosure crisis. LOANMODLOANMODLOANMOD is like a bad mantra shouting down the question of how can "lenders" who don't actually own the loans lawfully modify anything? You assume just because the banks and their many parasites push papers at homeowners saying essentially "pay us or we'll put you out" they are actually owed. Yet when pushed to prove it, even by a court, they fight hard to have that fact ignored. Our Supreme Court's recent Pasillas and Leyva decisions smacked that one down.

    "Why don't the banks want us to see the paperwork on all these mortgages? Because the documents represent a death sentence for them..... in America, it's far more shameful to owe money than it is to steal it." -- an article from the November 25, 2010 issue of Rolling Stone by Matt Taibbi "Courts Helping Banks Screw Over Homeowners"

  5. "How do you solve the problem IF all these banks have the actual required paperwork?"

    TomD -- IF they do then there's no problem for them. But they don't, even the big federal regulator nailed the biggest banks on that last April, review their consent orders @ http://www.occ.gov/news-issuances/news-r....

    "...I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." -- Thomas Jefferson in his May 28, 1816, letter to John Taylor

  6. Kudos to ColinFromLasVegas. You hit the nail on the head!

  7. Why would the talk about foreclosures? It is personal business problem why would government be involved? Obama wants top spend money "helping" people who do not want to spend their own money on there home. What about the people who never got a refi? What about the people who paid cash? What about the people who pay their mortgage as they agreed? None of these people get any help, why should the government pick and choose who they want to help out? Let the chips fall, everyone is in the game. I bought several properties last year and I did not get the $8000 tax credit but my neighbor did. Why is that? What make him so special? I did not get cash for my old car but my neighbor did.
    The Republicans have it right, stay out of peoples' business!

  8. The Republicans haven't talked about foreclosures because there's no money coming from that part of their consituentcy.
    Instead they talk about defunding and dismanteling the EPA,about erasing the line between church and state,about overturning Roe v Wade,about busting unions and undoing banking reforms that were made in an effort to prevent another economic meltdown.
    They talk about doing those things because THATS where the money is coming from ,and these candidates have either been won at auction or soon will be won at auction, and they are/will be expected to pay dividends whether or not it's whats best for the country.

  9. "Why would the [sic] talk about foreclosures? It is personal business problem why would government be involved?"

    petef -- because the root cause of the problem is the banks, the biggest being national banking associations chartered under the National Bank Act of 1864. Their federal regulator is the OCC, you'll find the link in my 11:39a post. Being corporations they are creatures of the laws creating them. If you buy your home on a note with a private individual, only then is it a "personal business problem."

    "The note is the cow and the mortgage the tail. The cow can survive without the tail, but the tail cannot survive without the cow." -- the late Professor Chester Smith of the University of Arizona College of Law, as cited in Restatement (Third) of Property, Mortgages 5.4, Reporters' Notes

  10. Police this Autumn, National Guard next Spring and the US Army next Fall. This is a Democracy in action!

    Those that can't afford $500/hr lobbyists who show up at the Capital around 11pm to push through last minute legislation for specialized tax breaks can only barter with the ultimate currency: their soles!

    Get ready for the ultimate solution....