Friday, October 21, 2011

"Don't Stop The Foreclosure Process"

On Monday, the Las Vegas Sun complained that, on the eve of the Republican debate in Las Vegas, none of the GOP candidates had anything substantial to say regarding Las Vegas' most pressing problem; namely, the housing crisis.

Perhaps in response to this complaint, also on Monday, Mitt Romney came out with some cold, cold advice. I was perturbed by Mitt Romney's statements:
Mitt Romney’s answer to the wave of home foreclosures might not play too well with swing-state voters. In an interview on Monday with the Las Vegas Review Journal — located in the state of Nevada, where the economy has been particularly damaged by the collapse of real estate — Romney spoke out against stopping foreclosures:
“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 and stop the foreclosure process,” said Romney. “Let it run its course, and hit the bottom, allow investors to buy up 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 long existed, and as a result we still have a foreclosure overhang.
However, as he continued, he is not closing the door on all options — though he’s also not agreeing to any: “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 gonna pay, and who’s gonna get bailed out. And that’s not something that we know all the answers to yet.”
These statements bother me. First, it is always the fastest way out of a crisis like this to give up at the first sign of trouble. First missed mortgage payment, you and your family are out on the street - NOW! By that logic, yes, we could get through the crisis right now and have a robust housing market, say, in a month or two, but we'd probably have to throw a quarter of the Las Vegas population onto the streets next week. That crisis would dwarf any improvement the housing market would experience. And how are people who are "upside-down" supposed to refinance without adequate collateral?

Second, it isn't the Obama Administration that is slow-walking the foreclosure process, but the people living in the houses themselves. People with mortgages do NOT want to give up without a fight! And who can blame them? There's a huge amount of money at stake!

As is now abundantly clear, with the various robo-signing scandals across the country, the banks are dead-set and determined not to follow the slow-moving "foreclosure process that long existed." So why should anyone expect the people with troubled mortgages to follow the bastardized foreclosure process invented by the banks in the last three years? Why shouldn't people get in touch with their lawyers and assert their rights? Century's-old common law rights that predate the Constitution? The rule of law, anyone?

Since mortgage-backed securities started to be traded - say, about 1998, when they were invented - the contempt for century's-old property law in the United States, particularly regarding titles and foreclosures, has been truly breathtaking. If it really is a jungle out there, as it seems to be, there is logic to fighting back. Contrary to Romney, the rebound in the housing market will be nasty, brutish, and very, very long. As it should be!

The economic recovery will just have to wait....

[UPDATE] And in the Las Vegas Sun today, there is an editorial suggesting Romney is right. And in some respects he is, of course. But why should mortgage holders be required to follow the law when the banks certainly don't, and won't?:
Hard as it is to hear for Las Vegas residents, Romney might be right, according to real estate experts and economists from across the spectrum.

...By one way of thinking, the faster we get people out who can’t or won’t pay their mortgage and replace them with new owners, the faster we get to stability.

Another upside of the collapse in prices: Las Vegas real estate — both residential and commercial — is suddenly very affordable for retirees and business owners, giving us a competitive advantage.

A do-nothing policy is not without risk or collateral damage, however.

Neighborhood blight — empty homes, absent owners, ne’er-do-well renters — is a problem. Baker advocates a “right-to-rent” program wherein the homeowner would give up the home but be entitled to rent it from the bank or new owner at a fair market price determined by an assessor. This would give neighborhoods continuity.

...According to a University of Chicago study, 35 percent of mortgage defaults are “strategic,” meaning the homeowner could pay but decides not to because the investment has become worthless.

...One way to stop it: Massive principal reduction — reduce what the borrower owes to something closer to market reality. Former Reagan administration economist Martin Feldstein called for this in a recent New York Times Op-Ed.

...Of course, someone has to pay for principal reduction: Either the banks, or the taxpayers, or some combination of the two.

As Lang says, “Where’s the money come from?” The politics are brutal, as Wall Street has a solid grip on both parties, and taxpayers are loath to pay down someone else’s mortgage.

For whatever you think of Romney and his callous message to Nevadans, the lesson here is this: Once you’ve fallen for the scam — be it Tulips in 1630, in 1999, or Las Vegas houses in 2005 — you shouldn’t expect to get repaid. The money wasn’t there in the first place.

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