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Why the Silence on Housing?

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Watching  the presidential debate last night, I was struck by how both President Barak Obama and Gov. Mitt Romney avoided addressing one of the most pressing economic issues in America: housing policy and the foreclosure crisis.

I can easily understand why President Obama would avoid talking about the foreclosure crisis given his lackluster record in stemming foreclosure activity. Gov. Romney, meanwhile, has good reason to skirt the troubled real estate market too, considering his ill-timed free-market remarks about how to fix Nevada’s foreclosure crisis.

Another reason why President Obama may not want to talk about the foreclosure crisis is because the federal government is so deeply entangled in residential real estate. For example, Fannie Mae and Freddie Mac, who were taken over by Uncle Sam on Sept. 8, 2008, owe American taxpayers about $185 billion. The two government-sponsored enterprises (GSEs) are also America’s largest landlord, owning over 130,000 foreclosed properties. President Obama doesn’t want to talk about messy GSE reform or the prickly issue of foreclosures. He can leave those matters to be resolved by the next U.S. president.

Some say the federal government, namely Fannie and Freddie, are directly responsible  for the foreclosure fiasco. Oonagh McDonald, author of a new book “Fannie Mae and Freddie Mac,Turning the American Dream Into a Nightmare,” (Bloomsbury 2012), blames Uncle Sam and his cousins Fannie and Freddie for the mortgage mess, the global financial bust and the foreclosure debacle.

A “large slice of the blame,” writes McDonald, must go to Fannie and Freddie. “But above all, it was the distortion of the banking sector to achieve political ends that ultimately caused the crisis.”

The Obama administration’s flagship foreclosure prevention program Home Affordable Modification Program (HAMP), helped modify about one million  borrowers, but President Obama promised it would help four million. Another  program — Home Affordable Refinance Program (HARP) was designed to help five million borrowers refinance their mortgages, but it only  helped about 1.5 million borrowers.

Last month, Romney outlined his free market plan to help housing in a house white paper. Unlike President Obama, Gov. Romney favors a hands-off, laissez-faire, approach to housing and dealing with the foreclosure issue. Here’s what Romney told the Las Vegas Review-Journal back in October:

“There are things you can do to encourage housing. One is, don't try and stop the  foreclosure process. Let it run its course and hit the bottom. Allow investors  to buy homes, put renters in them, fix the homes up and let it turn around and come back up. The Obama administration has slow-walked the foreclosure process that has long existed, and as a result, we still have a foreclosure overhang.

“Number two, the credit that was given to first-time home buyers (in President Obama's stimulus) was  insufficient and inadequate to turn around the housing market and was an ineffective idea. It was a bit like the ‘Cash for Clunkers’ program, throwing government money at something which was not market-oriented, did not staunch the decline in home values any more than it (‘Cash for Clunkers’) encouraged  the auto industry to take off.

“I think the idea of helping people refinance homes to stay in them is one that’s worth further consideration, but I’m not signing on until I find out who’s going to pay and who’s going to get  bailed out, and that’s not something which we know all the answers to yet.”
   
Clearly, both campaigns have a lot of work to do to articulate their housing policies. In a nutshell, President Obama thinks government is the solution to the housing and foreclosure crisis. Gov. Romney believes market-oriented solutions will fix housing.

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