Details show Romney housing plan challenges, contradictions
Mitt Romney released the most detailed plan for housing in the presidential campaign so far, but much of it attacks past Obama administration policies and proposes some ideas already under way or at least on the table.
The first number Romney throws out is that "under President Obama ... homeowners have received more than 8.5 million foreclosure notices."
However, such foreclosure actions by mortgage servicers were not taken as a result of Obama administration policies. Rather, they occurred because the housing market crumbled in 2007, long before Obama took office as president in January 2009. The housing crisis was followed by the Great Recession and the September 2008 financial crisis, both also occurring prior to President Obama taking office.
Also, according to most estimates, the number of homes actually lost to foreclosure is 3.7 million to 4 million.
The rest were either modified, disposed of through short sales or tied up in a backlogged system caused by the mortgage servicers themselves and the swarm of government programs Romney criticizes next: "President Obama rolled out an alphabet soup of more than 10 housing finance programs rather than offering a real solution."
These programs mostly come under the Home Affordable Modification Program. Through it, the Treasury Department dished out roughly $9 billion in taxpayer dollars for modifications, short sales, principal reduction, forbearance, deeds-in-lieu of foreclosure and other assistance. The roughly 1 million permanent loan modifications under HAMP will fall far short of the 3 million to 4 million originally expected.
Romney echoes the frustrations those in charge of overseeing the programs have been voicing for a long time such as those by Neil Barofsky, former Special Inspector General for TARP.
"HAMP's failure to meet its original expectations has many causes, starting with a rushed launch based on inadequate analysis, an insufficient incentive structure, and without fully developed rules, which has required frequent changes to program guidelines," Barofsky told Congress last year.
Still, by eliminating these programs, Romney has vowed to allow mortgage servicers to restart the foreclosure process. And the 8.5 million filings he criticized Obama for allowing will likely accelerate.
However, the Romney plan includes room to "facilitate foreclosure alternatives for those who cannot afford to pay their mortgage."
This may allude to more short sales or deeds-in-lieu. The interesting thing is, there's already a government program built to do just that, and it might be one of the ones Romney vows to throw out. The Home Affordable Foreclosure Alternatives Program, known by its acronym HAFA, launched in April 2010. More than 55,000 short sales have been completed through June.
But just $237 million in Troubled Asset Relief Program dollars have been spent through HAFA so far. Large banks are already dolling out big payouts to borrowers in order to get them to take deals outside of HAFA. A Romney administration might tweak HAFA.
Romney pins the more than 11 million borrowers who owe more on their mortgages than their home is worth and falling house prices that put them there on the Obama administration as well.
But to solve it, he backs a program both the Federal Housing Finance Agency and the Obama administration built: the Home Affordable Refinance Program, or HARP. An expanded version of the program, which many Democrats pushed for, launched in March, and already more borrowers refinanced their loans through it in the first eight months this year than in all of 2011.
Romney also vowed to tackle the shadow inventory of foreclosed homes using a method already under way. The GOP candidate said he wants to "responsibly sell the 200,000 vacant foreclosed homes owned by the government."
Fannie Mae, Freddie Mac and the Department of Housing and Urban Development reduced their inventory of REO by 18% over the last year to just more than 202,000 properties. At its height of REO inventory in 2010, Fannie held nearly 162,500 previously foreclosed homes. The GSE trimmed that down to a little more than 109,000 as of June 30 and is currently getting more for its properties as a percentage of the unpaid principal balance than at any point since the recession struck.
Romney has previously said he supports renting more of these homes out or selling them to investors. But again, these ideas first came from the Federal Housing Finance Agency and the Obama administration. Pilots were launched this year.
Romney then criticizes the administration for making it too difficult for borrowers to access credit. He points to "more than 8,000 pages of new rules and regulations," which he himself actually backs. He told TIME Magazine in an issue released this month that the risk-retention rule under the Dodd-Frank Act was a good idea. Yet, many lenders have said they are waiting on it and the qualified mortgage rule to be finalized before mortgage credit can be expanded.
Finally, Romney blasts the Obama administration for doing nothing on Fannie Mae and Freddie Mac over the last four years. Outside of a white paper released more than a year and a half ago, no serious proposals have come out of the White House or Treasury.
But a Republican-controlled House hasn't done much either, outside of passing up to 15 bills that FHFA Acting Director Edward DeMarco called largely duplicative of conservatorship agreements already in place.
The House Financial Services Committee received some proposals from its own members on how to replace Fannie and Freddie with both a public-private system or a completely private one. But Republicans in charge of the panel haven't voted for a single one and continue to say they are waiting on the administration to submit a plan.
At least in this regard, Romney makes his views clear on what he would do with them: "Mitt Romney will reform these government-sponsored companies to protect taxpayers from additional risk in the future by ensuring taxpayer dollars in the housing market are replaced with private dollars."
The trick will be getting this idea through even his own party, many of whom are backed by special interest groups from the industry such as the National Association of Realtors and the Mortgage Bankers Association. All have stressed the need for at least some government backstop to ensure the liquidity of old returns to the housing market.