Romney’s criticism is odd, considering the candidate’s only elucidated housing proposal was telling homeowners, “Don’t try and stop the foreclosure process. Let it run its course and hit bottom.” That Romney said it in Nevada, a state that has been among the tops for foreclosures since the crisis, made his policy prescription even more remarkable — and it earned him strong rebukes from Nevada’s Republican governor and several of the state’s Republican lawmakers. And even though Romney’s economic plan had 59 points — none was related to housing.

The foreclosure crisis Romney blames on Obama, meanwhile, started well before he took office, culminating in the 2008 financial crisis that started the Great Recession. High unemployment — which Romney again blames on Obama — was largely a result of that crisis, and though Romney has continually slammed Obama for making the economy worse, he and his campaign have yet to substantiate those claims.

Children have been “the invisible victims” of the crisis, but 2.3 million have already been directly affected by foreclosure. An estimated six million are in high-risk foreclosure situations, as the chart below shows:

Between 12 and 19 percent of children are in at-risk situations in California, Florida, Nevada, and Arizona, and more than half a million children have gone through foreclosure in California alone. In six other states — Colorado, Georgia, Illinois, Maryland, Michigan, and Rhode Island — between 8 and 10 percent of children are at-risk. But even these estimates are “conservative,” the report says, as it examined mortgage data from 2004-2008 and is based on loan status as of February 2011. The actual numbers could be much higher.

The number of children living in poverty, exacerbated by the effects of the Great Recession, reached 15.7 million in 2011, and the number of homeless children has risen 33 percent in the last three years. The foreclosure crisis has contributed to that, placing children at a higher risk of entering poverty, and as the U.S. Census noted, “Children who live in poverty…are more likely than their peers to have cognitive and behavioral difficulties, to complete fewer years of education, and, as they grow up, to experience more years of unemployment.”

Romney went into a level of detail not usually seen by the public in the speech, which was overheard by reporters on a sidewalk below. One possibility floated by Romney included the elimination of the Department of Housing and Urban Development, the Cabinet-level agency once led by Romney’s father, George.

“I’m going to take a lot of departments in Washington, and agencies, and combine them. Some eliminate, but I’m probably not going to lay out just exactly which ones are going to go,” Romney said. “Things like Housing and Urban Development, which my dad was head of, that might not be around later.

Regarding taxes, Romney said, “I’m going to probably eliminate for high income people the second home mortgage deduction.” He also said that he would “likely eliminate deductions for state income and property taxes.” The campaign is already attempting to walk the comments back, with a Romney adviser telling CNN, “He was tossing ideas out, not unveiling policy.”

For starters, Romney’s tax ideas, while reasonable, would raise nowhere near enough money to offset the huge tax cuts that he has in mind. Those tax cuts would increase the deficit by $900 billion in 2015 alone. Meanwhile, eliminating the deduction for state and local taxes, one of the largest tax expenditures for the government, for everyone saves $72 billion per year, and saves far less if the elimination is limited to upper-income Americans.

Romney’s plan to eliminate HUD, assuming he didn’t shuffle its programs to other departments, would bring an end to critical programs like Section 8 housing vouchers and community development block grants. Eliminating housing assistance is even more problematic given the disproportionate percentage of veterans in the homeless population.

So while he’s happy to hand out tax breaks worth hundreds of thousands of dollars to the very richest Americans, Romney would at least contemplate eliminating housing subsidies for the very lowest income Americans, giving them little hope of putting a roof over their heads.

Thursday, those calls got a boost from International Monetary Fund chief Christine Lagarde. Speaking at the Brookings Institution in Washington, Lagarde reiterated that mortgage relief was a “long-standing position” for the IMF, and that the U.S. should institute such a plan in order to return consumption and the appropriate level of indebtedness back to the American economy:

LAGARDE: This is something that the IMF has had a long-standing position of. The housing problem is something that needs to be addressed as a matter of urgency. And measures have been taken, there are proposals made by the administration. The big boys and girls, Fannie and Freddie, have to be a part of the equation. Because clearly, American households have to be able to unload a bit. Just in the way we’ve encouraged banks to lend, the households have to helped to borrow, so that consumption and appropriate indebtedness can be reinitiated. That’s our position.

The IMF has, indeed, had a long-standing position on mortgage relief for homeowners in the United States and around the world. In April 2011, it issued a report calling for mortgage relief, noting that American banks could withstand the losses principal reduction would bring about, despite their claims to the contrary. Lagarde called for mortgage relief in her initial speech as IMF head in August, and the IMF has made similar calls for struggling economies in Ireland and other countries, and recently issued another report calling for such a program in the United States.

Federal Housing Finance Agency head Edward DeMarco has thus far resisted calls for principal reduction, claiming that it “would protect big banks” at taxpayer expense, despite studies showing that it would save taxpayers money in the long-term. With progressive Democrats calling for DeMarco’s ouster and outside analysts criticizing his opposition to principal reduction, however, he has started to change his tune. Tuesday, DeMarco finally showed openness to principal reduction, and he is expected to make a decision on such a program sometime this month.

Dirma Rodriguez fell behind on her original loan after spending thousands of dollars installing tile floors and a wheelchair ramp to make it easier for Ingrid Ortiz, her daughter who has cerebral palsy, to move around the house. When Rodriguez fell behind on her original loan, Bank of America offered her a trial modification. Even though Rodriguez kept up with those payments for more than a year, the bank sold her home at auction, and the new owner is pursuing eviction, the Los Angeles Times reports:

Rodriguez took out a loan to retrofit her house for her special-needs daughter. After she fell behind on her payments, the Bank of America lowered her monthly obligation, but then sold the house at a foreclosure auction last September. The new owner, a house flipper from El Segundo called West Ridge Rentals, moved to evict the family. [...]

Bank of America inherited Rodriguez’s loan from Countrywide. After her payment jumped, and she fell behind, the bank placed her in a trial loan modification. She made her payments faithfully for 13 months and was awaiting a permanent modification package when the bank sold her home out from under her, she says.

Rodriguez’s story, unfortunately, is not unique. Thanks to the process known as dual-tracking, banks have thrown thousands of homeowners into foreclosure even while offering those same homeowners loan modifications. As a result, homeowners who were willing to make new, lower payments to stay in their homes are often evicted anyway. Dual tracking, along discriminatory, fraudulent, and deceptive practices, led Bank of America and other Wall Street banks to settle a $25 billion suit with the federal government last month.

Trial modifications like the one given to Rodriguez, whose loan is backed by Freddie Mac, are supposed to last three months before the terms of the modification are made permanent if all payments are made. Rodriguez says she made 13 consecutive payments, but Bank of America told the Times that it still wants to be sure she can afford the payments before it makes the modification permanent. “I don’t want a free house,” Rodriguez told the Times. “I just want to make my payments.”

Luckily for Rodriguez, local activists have taken up her cause. Occupy Fights Foreclosure helped her stave off a scheduled eviction on March 26, and the company that bought her home at auction is willing to return it if Bank of America pays it back. The bank, which set the whole process in motion, is now considering giving her a modification that would allow her to keep the home.

Adding to the list of horrors, ProPublica found that Litton Loan Servicing, which was owned by Goldman Sachs at the time, denied many troubled homeowners mortgage modifications after sending their paperwork to India and losing it:

When homeowners faxed their documents, they didn’t go to Litton, [former employee Chris Wyatt] says. They went to India, where a low-cost company scanned and filed the documents — but often misfiled or lost them. Wyatt says Litton routinely denied modifications because homeowners had not sent their documents when, in fact, they had.

In a process internally referred to as a “denial sweep,” Litton’s computers would automatically generate denial letters for every homeowner who, according to Litton’s records, hadn’t sent their documents. But untold numbers of those documents had been lost on another continent. Wyatt complained about the practice in multiple meetings with senior management, he says, but managers were chiefly worried about reducing the overwhelming backlog.

Behavior of this sort is part of the reason that the Obama administration’s mortgage modification programs came up so woefully short of their goals. The programs depended far too much on providing incentives to the banks to modify mortgages, despite the shoddy state of those banks’ modification processes, and therefore only a fraction of the people at whom the programs were aimed actually received any help.

Wells Fargo has taken advantage of borrowers who rely on it to accurately apply payments and calculate the amounts owed. But perhaps more disturbing is Wells Fargo’s refusal to voluntarily correct its errors. It prefers to rely on the ignorance of borrowers or their inability to fund a challenge to its demands, rather than voluntarily relinquish gains obtained through improper accounting methods. Wells Fargo’s conduct was a breach of its contractual obligations to its borrowers. More importantly, when exposed, it revealed its true corporate character by denying any obligation to correct its past transgressions and mounting a legal assault ensure it never had to. Society requires that those in business conduct themselves with honestly and fair dealing. [...]

Wells Fargo’s actions were not only highly reprehensible, but its subsequent reaction on their exposure has been less than satisfactory. There is a strong societal interest in preventing such future conduct through a punitive award.

As Naked Capitalism’s Yves Smith noted, Wells Fargo “has an annoying habit of piously claiming it is better than other servicers when it engages in the same indefensible conduct as its peers.” Indeed, Wells Fargo has used robo-signers to fraudulently foreclosure on borrowers and has illegally foreclosed on military veterans. The bank even promoted woefully unqualified employees — including one who came to the bank from a pizza restaurant — to “vice president,” so that they could speed more foreclosures through the pipeline.

Wells Fargo’s repugnant foreclosure practices have led some to move their money out of the bank, including a group of clergy in San Francisco that pulled $10 million out of the bank and called on it “to put an immediate freeze on its foreclosures and repent for [its] misconduct.”

They found that properties in predominately black and Latino neighborhoods were far more likely than those in predominately white areas to be left in disrepair, with maintenance problems such as broken or boarded-up windows, unkempt yards, water damage and unsecured entrances. In addition, foreclosed properties in minority neighborhoods were routinely less likely to have for-sale signs than those in white communities.

“The inferior way in which banks maintain and market their REO properties in communities of color actually changes the character of and serves to degrade the quality of life in these neighborhoods,” said the report by NFHA, a consortium of groups from across the country dedicated to eliminating housing discrimination.

The report is the latest sign of discrimination on the part of big banks when it comes to America’s housing market. Earlier reports found that blacks and Latinos were twice as likely to have been affected by the housing crisis, largely because an industry that has become infamous for its predatory lending practices was even more predatory when dealing with black and Latino borrowers. Banks and lenders often pushed minority borrowers into subprime loans even when they qualified for prime loans, adding as much as $100,000 in interest payments over the life of the loan.

The NFHA did not name the banks that owned the properties it investigated, but it does plan to file administrative complaints with the Department of Housing and Urban Development soon.

There’s a growing consensus that more principal reduction — the writing off of a portion of an underwater mortgage in exchange for a higher likelihood of repayment — can help avoid another wave of costly and economy-crushing foreclosures. But the country’s two biggest mortgage companies are not convinced.

Fannie Mae and Freddie Mac (the GSEs), both under government conservatorship since 2008, have yet to embrace principal reduction as a viable foreclosure mitigation tool. In fact, the mortgage giants are forbidden from lowering principal on any loans they own or guarantee by their regulator, the Federal Housing Finance Agency, or FHFA.

We think it’s time for Fannie, Freddie, and FHFA to rethink that position. Here’s the basic argument in a new report.

Reams of economic evidence show that principal reduction is often the most cost-effective way to avoid unnecessary foreclosure, especially when a borrower is deeply underwater — owing significantly more on their mortgage than their home is worth — and facing a long-term economic hardship. That’s because reducing principal is the only way to rebuild an underwater borrower’s equity while permanently lowering monthly mortgage payments.

Fewer foreclosures help more than just struggling homeowners. Local housing markets are better off, as each foreclosure decreases the value of every other home in the neighborhood. And since the average foreclosure costs more than $50,000 to the lender or investor, avoiding default often helps the books of Fannie and Freddie, which in turn benefits every taxpayer on the hook for their losses.

So while principal reduction will give more struggling homeowners a fighting chance at staying in their homes, this is not a matter of charity. It’s good business. That’s why roughly one in four modifications on bank-held loans involved some principal reduction in the last quarter of 2011, according to data released yesterday by the Office of the Comptroller of the Currency.

Fannie, Freddie, and, FHFA are aware if this, of course. In fact, the FHFA’s own analysis shows that reducing principal on all deeply underwater GSE-backed loans — about 1.4 million mortgages altogether — would save the enterprises and the taxpayers supporting them approximately $20 billion over the life of those loans compared to not doing anything.

And we expect those gains to be even higher today, after the Obama administration announced new incentives for Fannie and Freddie to write down principal through the Home Affordable Modification Program, or HAMP. Indeed, recent reports and statements from top brass at Freddie indicate the GSEs may be warming to the idea of principal reduction.

Despite all of this evidence, FHFA is still hesitant to deploy principal reductions, instead relying on other loan modifications that they (falsely) believe reduce taxpayer risk. (With FHFA’s goal of maximizing returns to taxpayers in mind, we offer a possible solution in our report.)

To be sure, a principal reduction pilot will not be a silver bullet to our housing woes. But the painful reality is that we’re a long way from the end of the crisis, and millions of GSE-backed loans are still at serious risk of foreclosure today. Fannie, Freddie and their regulator need to keep all options on the table.

Conservatives for years have pushed a flawed and largely-debunked narrative about the origins of the financial crisis. They claim that misguided government housing policies forced Fannie Mae, Freddie Mac (the GSE’s), and other financial institutions to take on unprecedented levels of risk, creating a bubble and bust in the subprime housing market that sparked financial catastrophe.

To test that theory — which New York Times columnist Joe Nocera dubbed the “Big Lie” — the Federal Reserve Bank of St. Louis recently investigated whether affordable housing policies had any influence on the price or proliferation of subprime mortgages in the mid-2000s. Spoiler alert — they didn’t:

We find no evidence that lenders increased subprime originations or altered pricing around the discrete eligibility cutoffs for the Government Sponsored Enterprises (GSEs) affordable housing goals or the Community Reinvestment Act. Our results indicate that the extensive purchases of risky private-label mortgage-backed securities by the GSEs were not due to affordable housing mandates.

The study analyzed loan- and neighborhood-level data in California and Florida. It found no statistical relationship between the two federal housing policies — which have been the central focus of conservative attacks in recent years — and the price or availability of subprime loans, even after controlling for the loan size, loan type, borrower characteristics, and other factors.

These findings shouldn’t come as a surprise. Indeed, CAP’s housing team has been making this point for years.

Here’s what really happened. During the housing bubble of the mid-2000s, over-leveraged shadow banks packaged risky subprime mortgage loans into securities and passed them along to consumers that were often unaware or misinformed of the underlying risks. It was the poor performance of these private-label securities — not those issued by Fannie and Freddie — that led to the financial meltdown, according to the bipartisan Financial Crisis Inquiry Commission.

Since their inception, the Community Reinvestment Act and affordable housing goals have helped millions of creditworthy low-income and minority families access affordable mortgages. Most high-risk subprime loans were originated by non-bank lenders not subject to CRA, and the loans were usually issued to middle- and high-income borrowers that did not qualify for CRA. It’s also important to note that Fannie and Freddie did not securitize subprime mortgages.

To be sure, Fannie and Freddie did eventually take on riskier mortgage products — so-called “Alt-As” — in 2006 and 2007, but they lagged the private-label market significantly in an effort to win back market share. In the end, Fannie and Freddie failed primarily because they are entirely focused on residential mortgage finance, unlike most private investment firms. So the government-sponsored enterprises were hit especially hard by the historic drop in home prices starting in 2006.

The new Fed study adds to a mountain of evidence debunking the politically-convenient conservative myth that government housing policies — not Wall Street — caused the foreclosure crisis. As Congress and the Obama administration consider how to best wind down Fannie Mae and Freddie Mac in the coming months, facts should drive the debate, not a surreptitious campaign to rewrite the history.

But South Carolina may take the cake in the quest for the most ridiculous perversion of the settlement, as its GOP-controlled state House voted to use the money for corporate tax incentives. The state’s Republican attorney general, Alan Wilson, would also like to spend the money on a slew of programs, including “to help pay for the state’s lawsuit to block the expansion of the Savannah River port in Georgia”:

South Carolina Attorney General Alan Wilson wants the state’s portion of a $25 billion mortgage fraud settlement to go to shelters for battered women and homeless military veterans, and to help pay for the state’s lawsuit to block the expansion of the Savannah River port in Georgia.

Last week, House Republicans voted to give South Carolina’s portion of the settlement – about $31 million – to the state Commerce Department to create incentives for companies to locate in the Palmetto State. Democrats vainly argued the money should be used to help people who have lost their homes to foreclosure.

Wilson, a Republican, told House Democrats Tuesday that while the settlement gives him “a lot of discretion” in how the money is spent, he thinks the state Legislature should decide.

Some of these suggestions — like shelters for women or aiding homeless veterans — are surely good ideas. But the foreclosure settlement money is simply not intended for them. And it certainly is not meant for states to throw tax incentives at corporations or to pay for lawsuits entirely unrelated to anything about housing.

State Rep. Gary Simrill (R), said that using the foreclosure fraud settlement on corporate tax incentives is legitimate because it “has an exponential impact … that it is going to bring in jobs.” “[Commerce Secretary Bobby Hitt] tells us he needs help. He needs to be able to bring the fish into the boat. We want jobs. We need jobs,” Simrill added. And evidently those in the state hoping for some housing help will just have to look elsewhere.

The budget says, without very many details, that the GOP would wind down government backed mortgage giants Fannie Mae and Freddie Mac, while changing accounting rules to make Federal Housing Agency programs appear more expensive than they are. As the Center for American Progress’ David Min and John Griffith noted, these efforts could derail a housing recovery because:

– Federal support is keeping the housing market alive today.

– There’s no evidence that private money could fill the void if government-backed mortgages disappeared.

– Proposed “fair value” accounting rules would unnecessarily weaken FHA’s ability to stabilize the market and make homeownership possible for more Americans.

It’s unclear what time frame the GOP envisions for ending support for the housing market, or if they think any federal role in promoting homeownership is warranted. And this isn’t the first time that the GOP has proposed recklessly kicking the legs out from underneath Fannie and Freddie while they, like it or not, are keeping the housing market afloat.

But while the two mortgage giants can’t exist in their current form in the long run, removing all federal support from the housing market is simply unfeasible at the moment (and wouldn’t make for a good system going forward anyway). But the House Republicans, with their budget, are more intent on dismantling the social safety net than in actually promoting a recovery, so perhaps the fact that their housing plan would be a disaster shouldn’t come as much of a surprise.

DeMarco has been claiming that mortgage principal reductions would cost taxpayers $100 billion, but analysts last week threw cold water on that number, saying it comes from a flawed study. And today, ProPublica reports that an internal analysis from Fannie and Freddie found that aiding homeowners would save taxpayers money in the long run:

New analyses by mortgage giants Freddie Mac and Fannie Mae have added an explosive new dimension to one of the most politically charged debates about the housing crisis: Whether to reduce the amount of money beleaguered homeowners owe on their mortgages.

Their conclusion: Such loan forgiveness wouldn’t just help keep hundreds of thousands of families in their homes, it would also save Freddie and Fannie money. That, in turn, would help taxpayers, who bailed out the companies at a cost of more than $150 billion and are still on the hook for future losses. [...]

The companies now find that reducing principal on troubled mortgages has a “positive net present value” — in other words, that doing it would bring in more money for the companies over the life of the loans than not doing it.

The two companies’ analyses showed that upwards of a quarter million borrowers who owe more on their mortgages than their homes are worth could benefit from principal reductions. The companies would take a loss upfront, but over the long run these mortgage modifications would save the companies money because they would lead to lower default rates.

Many economists have said that Fannie and Freddie writing down mortgages would aid the economy and Department of Housing and Urban Development Secretary Shaun Donovan has tried to push the FHFA to allow the mortgage giants to take that step. Hopefully, this new analysis will lend some momentum to those saying that the most prudent thing the government can do to help Fannie and Freddie — and the wider economy — is keep people in their homes, rather than adding to the glut of vacant houses that haul down home prices for everyone in the neighborhood.

DeMarco has been justifying his stance by pointing to a study claiming that widespread reduction of mortgage principal would cost taxpayers $100 billion. But this week, an analyst from broker-dealer Amherst Securities said told a Senate subcommittee that DeMarco’s estimate is bunk:

Federal Housing Finance Agency analysis used to prevent principal reduction on Fannie Mae and Freddie Mac loans was seriously flawed, according to one leading analyst.

“We have reviewed the study and have a number of very substantial objections,” said Amherst Securities Senior Managing Director Laurie Goodman before a Senate subcommittee Thursday, who gathered additional data via telephone.

Goodman cited several problems with the study, including that it did not factor in bank incentives from the Home Affordable Modification Program (HAMP) and underestimated the number of homeowners severely underwater by not using city level housing data. She said that it the study were done correctly, “it will be clear that forgiveness is the better solution for the bulk of the two-thirds of their book of business without mortgage insurance.”

Many economists have said that Fannie and Freddie writing down mortgages would aid the economy and Department of Housing and Urban Development Secretary Shaun Donovan has tried to push the FHFA in that direction. But DeMarco has been stridently opposing the effort. It remains to be seen whether

Photo by flickr user gilsonrome

Between 2004–2006 and 2010, however, homeownership rates dropped sharply, and more so for Hispanic and black households than for white non-Hispanics. The overall homeownership rate of 65.1 percent in April 2010 was 1.1 percentage points lower than 10 years earlier. Blacks ended the 2010s with a lower homeownership rate, 44.3 percent, than their 1990 rate of 45.2 percent and two percentage points lower than just 10 years earlier… The homeownership rate for black non-Hispanics now lags the white non-Hispanic rate by nearly 28 percentage points, compared with 26 points in 2000 and just less than 25 points in 1990…..

…While the housing crisis has hurt people of all races and ethnicities, it has been devastating for many Hispanic and black families, reducing their median wealth by one half to two-thirds and significantly increasing the number of households with negative net worth.

Image courtesy of the Bipartisan Policy Center

The correlation between skin color and homeownership is not coincidental; during the housing crisis, Black and Latino homeowners were twice as likely to be foreclosed on. Indeed, in California Black and Latino homeowners are said to make up 50% of foreclosures but only 30% of homeowners.

During the housing crisis, the Center for American Progress found, there were huge racial disparities in the makeup of high-priced lending with banks targeting people of color. One of the banks that received a government bailout, was even accused of having steered people of color toward subprime loans. Undoubtedly, these dubious and racist banking practices led to the homeownership numbers we see today.

The Consumer Financial Protection Bureau is now taking steps to ensure the end of discriminatory lending practices. The damage, however, seems to have been done.

One of the biggest disappointments has been the Home Affordable Modification Program (HAMP). Meant to save 3-4 million homeowners from foreclosure, the program has reached just a fraction of that number, has barely spent any of the money allocated to it, and has been bogged down by bank intransigence.

Bank of America has been one of the worst banks for getting homeowners through the HAMP program. This has mostly been blamed on the bank’s incompetence, but a whistleblower suit in Colorado alleges that Bank of America was intentionally steering customers away from HAMP:

The complaint unsealed Wednesday was filed by whistleblower Gregory Mackler, a Colorado resident who said he worked alongside Bank of America executives while an employee at Urban Lending Solutions, a company to which Bank of America contracted some of its HAMP work.

While working at Urban Lending, Mackler said he saw BofA and its loan servicing subsidiary, BAC Homes Loans Servicing LP, implement “business practices designed to intentionally prevent scores of eligible homeowners from becoming eligible or staying eligible for permanent HAMP modification.”

The bank and its agents routinely pretended to have lost homeowners’ documents, failed to credit payments during trial modifications and intentionally misled homeowners about their eligibility for the program, the complaint alleged.

According to the complaint, Bank of America “let through just enough HAMP modifications to avert suspicion and allay congressional critics, while not enough to incur any substantial losses to its own bottom line.”

Back in 2009, ThinkProgress caught Bank of America violating HAMP by pushing eligible borrowers into the bank’s own, more expensive, private loan modification program. At the time, we pushed Treasury to more closely police the bank’s practices, to ensure it was complying with HAMP and providing maximum help to homeowners. If the allegations in the whistleblower case are true, that certainly didn’t happen.