“The thinking it took to get us into this mess is not the same thinking that is going to get us out of it.” Albert Einstein
We have red states, we have blue states and increasingly we have purple states, beat-up states with substantial and growing numbers of foreclosures, states that may well decide the next presidential election.
The foreclosure issue is being politicized because it’s too big to ignore and too many people are being impacted. Foreclosures are an emerging issue because they lead to reduced local home values and home values are one of the key measures of personal success. Foreclosures are front-page news, they’re affecting financial markets worldwide and for the first time in decades the lending system, foreclosure practices and bankruptcy rules may all be changed.
“The growing political importance of the foreclosure issue cannot be ignored,” says James J. Saccacio, chairman and chief executive officer of RealtyTrac, the leading online marketplace for foreclosure properties. “Conservative or liberal, democrat or republican, falling real estate prices caused by soaring foreclosure levels are an issue everyone can understand. If it’s true that all politics are local, nothing is more local than the home where you live.”
There’s a growing consensus in Washington that “something must be done” and a recognition that the present system is inadequate. With a need to capture the moderate middle to win the next election, politicians are now in a contest to see who can do more about the expanding foreclosure meltdown.
The Purple States: Foreclosed America
The political system is set up to assure that both large and small states are well-represented in Washington. Every state has two senators as well as a congressional delegation related to population size. By themselves, the top ten foreclosure states represent 20 of the 100 senate seats as well as 183 of the 435 members of the House of Representatives (42 percent).
The foreclosure states will play a pivotal role in the upcoming presidential election. In the U.S. we do not elect presidents by direct popular vote, instead we have an “electoral college” which consists one elector for each house and senate seat plus three for the District of Columbia, a total of 538.
Electoral Power Of The Foreclosure States
To control the U.S. government you need 51 senators, 218 house members and 270 electoral votes. The number of house, senate and electoral seats represented by the 10 top foreclosure states are not enough, by themselves, to gain control of the government. But any candidate or party that wins the purple states will also win the next presidential election. Here’s why:
The Purple States Coalition
In terms of the presidency, the purple states represent 203 of the 270 electoral votes needed for victory. Seen the other way, of the 335 electoral votes outside the purple zone a candidate would need to capture just 67 votes to win the presidency — one-fifth of all other electoral votes. This could be done with victories in few as 13 states, the 10 purple jurisdictions plus New York (31 electoral votes), Illinois (21) and Pennsylvania (also 21).
A winning presidential campaign does not guarantee a house or senate majority but it surely helps those affiliated with a winning national ticket. The Founders shrewdly engineered a system where the states needed to win the presidency and the house are insufficient by themselves to control the senate. It’s entirely possible for one party to win the presidency and lose one or both houses of congress.
What’s important about a purple-based campaign is that a candidate with limited funds or a minority of national support could concentrate on the ten largest foreclosure states and still mount a competitive — and winning — presidential effort.
There’s no single purple-states approach that guarantees a presidential victory, but according to the Mortgage Bankers Association we know there are some 50 million loans outstanding and that 35 percent of all residences are owned mortgage-free. The key issue that unites both those who are indebted and those without mortgages is the desire to maintain property values — something not possible with large numbers of foreclosures.
How could a candidate package a model foreclosure platform?
It’s fairly clear, as Mr. Einstein explained, that more of the same won’t work. As to what might work, candidates can pick and choose from a wide variety of possible planks and actions. Here are some of the choices that are readily available:
Being the candidate who will “protect our property.”
Creating localized “photo ops” by visiting homes being foreclosed as cameras roll.
Advocating periodic and lifetime interest rate caps for all adjustable-rate mortgages equal to 1 percent per year and no more than 5 percent over the life of the loan.
Requiring loan officers to be licensed and to have a fiduciary obligation to get the best rates and terms for individual borrowers.
Banning negative amortization in all residential loans.
Banning all prepayment penalties except to the extent that a lender pays cash at closing to reduce settlement costs.
Requiring loan documents to include the name and license number of the loan officer who sold the loan and the underwriter who approved the documentation.
Amending bankruptcy laws to provide greater equality between borrowers and debtors, specifically rejecting current rules which prevent a modification of residential mortgage debt.
Creating federal laws against predatory lending. Right now there are no federal laws which prevent lenders from selling subprime loans to borrowers with better credit or otherwise overcharging.
Allowing closing agents to offer rebates on title insurance. Title insurance commissions often equal more than 70 percent of premium costs, but laws in most jurisdictions prohibit rebates and the result is virtually no price competition.
Permitting lenders to bundle and sell closing services. This would reduce settlement expenses because lenders are always in the market for closing services and have leverage in the marketplace; that is, they could get a better deal than individual borrowers. Bundle prices would have to be disclosed in truth-in-lending statements.
Are these “radical” platform choices? To many lenders, absolutely. But the majority of people with a vote are not lenders.
Peter G. Miller is the author of The Common-Sense Mortgage and is syndicated in more than 100 newspapers.