Imagine holding a presidential debate in Manhattan in October of 2001 — and having zero questions about terrorism. Or a debate in post-Katrina New Orleans and ignoring the surrounding devastation. No way, right? Yet Republicans candidates just squared off in a two-hour debate in Las Vegas — a city where home prices have dropped a national high of 59 percent during the past five years — with almost no time spent discussing America’s housing depression.
One audience member did ask a question, but he was probably left wanting more. Rick Santorum immediately derailed the conversation into TARP. Mitt Romney nudged things back on track but said little more than about the need to “let markets work” by, presumably, quickening the pace of foreclosures. Oh, and by boosting economic growth — which is fine unless you think the moribund housing market is itself hurting growth. And Michele Bachmann, “talking to moms,” merely said the issue has “got to be solved.”
Recall the scope of the problem. U.S. home prices are down a third from their 2006 peak. According to CoreLogic, 10.9 million, or 22.5 percent, of all residential properties are in negative equity. And another 2.4 million have less than five percent equity. More than 4 million mortgages are at least 90 days delinquent or in some stage of foreclosure, with another 3.4 million mortgages likely on their way during the next year, according to Christopher Mayer, a professor at Columbia Business School.
So what to do? Occupy Wall Street would probably cut everybody a check and call a “do over.” Economists, however, do have some ideas that might help, while letting nobody completely off the hook.
1. Former Reagan economic adviser Martin Feldstein suggests a $350 billion mortgage principal writedown with taxpayers and banks splitting the cost and all affected mortgages converted into full recourse loans.
2. The University of Chicago’s Luigi Zingales would reduce underwater mortgages by the amount home prices have fallen in the area, with homeowners and banks splitting future price appreciation.
3. Columbia’s Mayer would allow every — more or less — current homeowner with a GSE mortgage to refinance to a new mortgage with a 4.2 percent rate or less. Mayer estimates mortgage payments would fall by about $70 billion for 25 million borrowers, or nearly $3,000 in average savings.
Now, maybe Romney was right last night. All we need is for banks to speed up foreclosures so prices can quickly find their lows and reduce buyer uncertainty. But one of his economic advisers, Glenn Hubbard, has pushed a mega refi plan with his Columbia colleague Mayer. Indeed, Romney had kind words generally for a refi plan in an interview before the debate: “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 found out who’s doing to pay and who’s going to get bailed out.”
Housing remains a huge drag on the economy. Perhaps none of the plans mentioned above would help in the least bit. But GOPers would do well to start thinking hard about the issue because they can be sure voters are.