Neither campaign is addressing the one issue that’s both the culprit of the financial crisis and the key to our recovery
For the last six months, Barack Obama and Mitt Romney have battled ferociously to be seen as the true champion of the middle class. Yet neither candidate has offered concrete solutions for — indeed they have rarely raised — a central economic issue: the housing crisis.
How can the collapsing home prices that pummeled the middle class hardest — accounting for three-quarters of the loss of wealth since 2007 — not be a campaign issue? Why is a principal cause of the economic downturn the focus of so little debate?
One explanation is simple. Across the country, the housing market is picking up. In September, new home construction increased by fifteen percent, its fastest rate in four years. And after seeing home mortgages become economic yokes that prevented their parents from moving out of depressed areas, many young Americans are less interested in buying homes.
For existing homeowners and the government, though, housing remains an enormous issue. If new government initiatives are not implemented, it could take another three to five years for the market to fully recover, analysts estimate. And The Wall Street Journal reports that neither candidate has offered ways to remake failed mortgage giants Fannie Mae and Freddie Mac, which have already cost taxpayers $140 billion and face further losses.
Across the United States, nearly 10.8 million properties — 22 percent of homes with a mortgage on them — remain underwater, according to CoreLogic, a data analysis firm. The numbers of properties where owners owe more than their home is worth is shrinking, but analysts say the process can, and must, be sped up.
Both Obama and Romney, though, have been silent on the issue. Why?
“It turns out to be a lose-lose issue for both candidates,” John Vogel, a professor at Dartmouth’s Tuck School of Business, recently told MarketWatch. “And therefore gets ignored.”
For each candidate, the reason for staying mum on housing is different. Obama does not have the strongest record to run on. And Romney has found that wading into housing opens himself up to being painted as a heartless corporate mogul.
In an interview with Reuters TV this week, Nobel Prize winning economist Joseph Stiglitz said it was “shocking” that neither candidate had spoken more about the issue or offered concrete solutions. He and other critics from the left say both men remain beholden to Wall Street.
“In some sense, they don’t want to offend the banks,” Stiglitz said. “The banks have been a major problem to doing something about the problem.”
Liberals have criticized the Obama administration for failing to spend all of the money that was allocated to ease the housing crisis. And the president has steered clear of proposals being considered by San Bernardino County, California, and other communities to seize distressed mortgages by eminent domain and restructure them. Wall Street bond investors overwhelming oppose such an approach.
The programs Obama created in 2009 to end the crisis, meanwhile, are not functioning as well as they should. In an October 10 report, CoreLogic analysts Sam Khater and Molly Boesel said that 1.5 million Americans have participated in Obama’s Home Affordable Refinance Plan (HARP) – which helps strapped homeowners refinance.
Yet nearly twice that number — 2.4 million people — are eligible for the program but not participating in it. A report today on Pro Publica blamed Republicans for the slow pace of change but many housing advocates say the administration could have done more.
As the election nears, Obama administration officials are privately promising bolder action but housing advocates say they don’t know whether to believe it. On Wednesday, The Financial Timesreported that if Obama wins a second term, he hopes to use a recess appointment to oust Edward DeMarco, the acting head of the Federal Housing Finance Agency.
DeMarco, a career civil servant, blocked a 2009 proposal by Obama to use reduction of principal as a way to lower debt obligations on government-guaranteed mortgages. Liberals ask why, though, Obama has waited for three years to act against DeMarco.
Romney, meanwhile, got into trouble early on housing during the race for the Republican nomination. In October 2011, he famously told a Nevada newspaper that foreclosures should be allowed to proceed.
“Don’t try to stop the foreclosure process,” Romney said in a video-taped interview with the Las Vegas Review Journal. “Let it run its course and hit the bottom.”
Romney immediately came under heavy attack in the state, which had the highest foreclosure rate in the country and had just passed a law that vastly slowed foreclosures.
In a TV interview last month in Nevada, Romney changed his tune. He said he would continue key elements of Obama’s policy – including the HARP program – but would better market them and streamline the process, the San Francisco Chronicle recently reported.
Last month, Romney’s website also posted a new housing page saying he supported facilitating “foreclosure alternatives,” reducing regulation and reforming Fannie Mae and Freddie Mac. The “foreclosure alternatives” appeared to be a reference to short sales, but no details were given on the website.
One area where the two candidates have shown a difference is on proposals regarding changing the home mortgage interest deduction. A popular tax break for the American middle class, the deduction is unusual; most developed countries don’t allow it.
Obama first proposed eliminating the deduction for anyone making over $250,000. As he has on other issues, Romney moved toward Obama’s positions, saying just before the first presidential debate that he would cap all deductions at a certain level — he offered $17,000 and $25,000 as examples. Capping the amount would be a de facto tax raise for the rich.
In the first debate, Obama said that the housing market was recovering and Romney didn’t challenge his assertion. Since then, housing has been rarely mentioned.
Given their statements during the campaign and the similarities of their positions, I can’t in good conscience recommend either candidate when it comes to housing. Despite the vast importance of the issue, both candidates have said little because no simple solutions exist. Housing is an area where Obama and Romney have given each other a pass — and given middle class voters next to nothing to hope for.
This article also appeared on Reuters.com, an Atlantic partner site.