Before a GOP presidential primary debate in Nevada, the state with the highest foreclosure rate in the nation, Mitt Romney said that the government should not try and prevent foreclosures. “Let it run its course and hit the bottom,” Romney explained.
With the GOP primary shifting to Florida, after Newt Gingrich’s win over the weekend in South Carolina, foreclosures are again on the list of issues to address, as the Sunshine State is seventh in the nation in foreclosures. One in every 360 housing units in Florida received at least one foreclosure notice in December. And it seems that Romney is changing his tune a bit from the last time he had to seriously address housing, seemingly telling a roundtable in Tampa Bay today that he thinks banks should have to write down mortgage principal — the amount outstanding on a mortgage — for borrowers who find themselves with a mortgage that costs more than their house is currently worth:
We’re just so overleveraged, so much debt in our society, and some of the institutions that hold it aren’t willing to write it off and say they made a mistake, they loaned too much, we’re overextended and write those down and start over. They keep on trying to harangue and pretend that what they have on their books is still what it’s worth…It’s helpful if you get an institution that’s willing to work with you, but if you don’t, you have very little option. [...]
The idea that somehow this is going to cure itself all by itself is probably not real. There’s going to have to be a much more concerted effort to work with the lending institutions and help them take action which is in their best interest and the best interest of the homeowners.
This is a far cry from his call to allow the housing market to “hit the bottom” unaided. In fact, the Obama administration has tried to implement policy to incentivize banks into modifying mortgages, making the same argument that Romney made today: that continued foreclosures are in nobody’s interest. (And Romney’s own top economic adviser has been pushing a plan for mass mortgage refinancing.)
Reducing principal for underwater borrowers (who owe more on their mortgage than their house is worth, due to the plunge in home values following the financial crisis) is a policy prescription for which progressives have been advocating, much to the consternation of Republicans. A couple of weeks ago, Senate Republicans reacted with outrage with the New York Federal Reserve suggested a program of principal reductions.
A report from the The New Bottom Line — a coalition of community, faith-based and labor groups — found that “if banks wrote down all underwater mortgages to market value and reﬁnanced the homeowners into 30-year, ﬁxed-rate loans at current market interest rates, that would pump $71 billion into the national economy.” Congressional Democrats have been pushing the Federal Housing Finance Agency to write down government back loans, but the FHFA has been resisting. And evidently Romney feels that the FHFA’s course of action is incorrect.