[Update: Adds Romney shared appreciation accounting proposals]
In his latest housing plan, Republican presidential nominee Mitt Romney promised to abolish President Obama’s foreclosure prevention programs in order to spark more private deals between banks and their borrowers.
“A Romney-Ryan Administration will make it easier for homeowners to get alternatives to foreclosure, such as short sales, deed-in-lieu-of-foreclosure and shared appreciation,” according to a policy released Friday.
A Romney administration would change accounting issues in order to make shared-appreciation more attractive to banks. For instance, lenders might be able to sell the future appreciation separately from the first mortgage or could hold it at market value on its balance sheet, according to a source familiar with the plans.
According to some bank or government initiatives proposed or already underway, servicers will reduce mortgage principal and share the value that appreciates afterward in order free up some of the 10.8 million underwater homeowners to either sell their home or refinance.
Many banks have refused principal reduction, even shared appreciation ones, without taxpayers supplementing at least some of the write-downs. Republicans applauded Federal Housing Finance Agency Acting Director Edward DeMarco when he rejected a taxpayer-funded idea for Fannie Mae and Freddie Mac loans in lieu of principal forbearance offers.
During the primaries, Romney repeatedly said that he would let local real estate markets “hit the bottom,” and give investors the chance to clear the foreclosed inventory.
A variety of Treasury Department initiatives under the Home Affordable Modification Program have underwhelmed. The administration expanded HAMP in January, but mortgage servicers have been slow to implement the wider guidelines and rejected or canceled their 1 millionth borrower from the program in July. On a monthly basis, private modification programs have long doubled HAMP. But the redefaults on these workouts far surpass the government programs.
Romney as he did in a former housing policy release vowed to overhaul the Dodd-Frank Act, and criticized the upcoming qualified mortgage rule from the Consumer Financial Protection Bureau due in January.
“More than two years since the passage of Dodd-Frank, regulators still haven’t been able to define what the characteristics of these ‘qualified mortgages’ should be, and the lack of certainty has paralyzed lenders. The end result is that credit-worthy borrowers are being rejected when they apply for a mortgage, and the housing recovery is being further delayed,” according to the plan.
The Romney campaign, like in its earlier version, promised to reform Fannie and Freddie but unlike previous language, there is no mention in the new policy of privatizing the GSEs completely.
“Rather than just talk about reform, a Romney-Ryan Administration will protect taxpayers from additional risk in the future by reforming Fannie Mae and Freddie Mac and provide a long-term, sustainable solution for the future of housing finance reform in our country,” according to the plan.