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Romney is Right on Housing

Posted by Larry Doyle on October 27, 2011 10:32 AM |

While the markets race higher today on the news of the European debt deal, our future economic landscape here in the United States remains squarely focused on the same two sectors today as it did three years ago. Those being, JOBS and HOUSING!!

Our employment problem is a function of many variables, but mostly a reflection of massive structural problems in many sectors of our economy.

On the housing front, far too many in Washington still seem to believe that they can stem the continued erosion in home values and foreclosures. When will they learn that market interference and manipulation do not work but only exacerbate the situation.

The White House and Democratic Party are already hard at work vilifying Mitt Romney for embracing the truth and market based principles for dealing with our housing fiasco.

Am I cold hearted for embracing a market based approach? Believe what you want but I firmly believe that our housing market would be in far better shape currently if we had allowed the market to work right from the get go. Why? Because private capital would have already entered at a much greater and faster rate than currently. This private capital is ‘being paid to wait’ as housing supply and likely foreclosures overhang the market.

The Wall Street Journal lead editorial today echoes sentiments I expressed on this topic a few years back. Let’s navigate as the WSJ writes, Romney’s Finest Hour,

Campaigning last week in Nevada, the epicenter of the housing bust, Mr. Romney was asked by the Las Vegas Review-Journal editorial board what he would do about housing and foreclosures. His reply:

“One is, don’t try and stop the foreclosure process. Let it run its course and hit the bottom. Allow investors to buy homes, put renters in them, fix the homes up. Let it turn around and come back up. The Obama Administration has slow-walked the foreclosure processes that have long existed, and as a result we still have a foreclosure overhang.”

How’s that for refreshing? After five years of politicians trying without success to postpone disclosures and levitate the housing market, Mr. Romney dared to tell the truth.

Romney is right. Our nation’s housing market will be far stronger the sooner that Uncle Sam gets out of the way. I wrote as much in May 2009 back when I penned, Water Finds Its Own Level,

If housing led us into this mess and is going to lead us out, then bring an extra pair of boots because we still have a long way to go.

Could the government intervention in the housing market promote short term support but also long term pressure? What do I mean? As I wrote yesterday in Mortgage Magic or Mortgage Mayhem, the government is providing real subsidies in terms of mortgage rates, guarantees, closing costs, and points.

These subsidies are generating support to segments of the housing market. That said, housing in general remains under severe pressure in many regions. The higher priced markets with very limited government intervention are virtually stagnant.

I think we will see further downward pressure on prices and a delay in real improvement in housing due to the fact that more homeowners are now under water on their mortgages.

Government intervention is simply attempting to apply sandbags to this problem. While I fully empathize with the families impacted, these sandbags are no remedy or foundation for a long term fix. In fact, I think these sandbags are potentially causing pools of private capital to refrain from entering the market. Why is that? A market that is being artificially supported will always cause real money to wait in the wings.

As the water finds its own level, the private capital will definitely enter. In so doing, it is very likely the private capital will ultimately push the market to levels even higher than current.

Any market participant knows, though, that a market that is manipulated may stay elevated for a short stretch but will move lower, find its natural clearing level, and then move higher. Housing is no different.

The White House and the Democratic supporters can try to hammer Romney for his embracing of market based principles to resolve our housing dilemma. I would ask Barack and team how his programs have worked so far. I would expect he would say that housing would have been so much worse without his interventions.

Don’t you believe it just as the market itself does not believe it either.

Navigate accordingly.

Larry Doyle

Isn’t it time to  subscribe to all my work via e-mail, an RSS feed, on Twitteror Facebook? Do your friends, family, and colleagues a favor and get them to do the same. Thanks!!

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

 

  • Peter S.

    How about bringing back the boat loads of jobs we sailed over seas. How can we expect those that can’t pay their mortgages, through no fault of their own (upside down and unemployed), to pay the rents that in many cities equal and/or exceed the mortgages they cannot afford. The vast majority of folks in this predicament are not the dead beats that much of the media portrays them to be. It about jobs, jobs, jobs; not rent, rent, rent.

  • Peter Evans

    Another free market moron advocating for capital above people.
    His basic fallacy is that private capital is waiting for market to hit rock bottom. The old bottom feeder theory. Buy really low, sell high.
    People need somewhere to live just like they need transportation. Perhaps we need to look on housing in a similar vein as a vehicle. No one bats an eye when their car loses 10% of market value as soon as it leaves the showroom. We need to rethink housing. It isn’t an automatic asset to be plundered when the market goes up, in order to fund consumer spending and keep America ‘growing’. There are plenty of foreclosures available. Private capital knows the govt will not allow the market to collapse so why aren’t all these homes being bought up even with the generous subsidies available? Because private capital knows we still have a long way to go before the people have any spending power. As soon as we see a rise in jobs and money floating around again, we will not see any meaningful investment in anything. No jobs, no spending QED. So private capital buys a foreclosure. They turn around and want to sell to who? OK so they use it as rental. You mean those same people who could not afford their mortgage can now afford to rent at a higher price allowing the capitalist to make a positive cash flow. Don’t be silly.
    What would have happened to the world economy had the banks not been bailed out? What about GM and Chrysler who between them needed 1 billion to stay afloat? Maybe they could have been auctioned off to the only country with excess money thanks to our free trade policies…China.
    When will these morons who believe capital produces wealth learn that it is labor that produces all the wealth in this country….any country.

  • Peter Evans

    Sorry to post twice. An error came back from server so I didn’t realise my piece had posted and then I found a mistake which I corrected on the second.
    Sometimes I just wish we could go to a real dog eat dog world.
    I could be a far better person if I just didn’t care about my fellow man.
    Get govt out of everything. So sue me!
    This Larry Doyle couldn’t exist in such a world.

    • LD

      Peter,

      Welcome to Sense on Cents. I hope you will visit and post often. Most of those who come here whether they agree or disagree with me actually maintain a degree of decorum and a modicum of respect. I would hope that is not too difficult for you.

      In regard to the topic at hand, I would ask you how the housing programs promoted by pols from both sides of the aisle worked for the people. Having disabused people on the way up, now the pols think they can save people on the way down. They are only making things worse.

      I would guess our discussion here revolves around those who would choose a capitalist system vs a socialist system. The problem we face is that capitalism has been abused by people on both sides and regulators as well for far too long.

      We all pay the price for those abuses.

      I have no interest in a dog eat dog world. I have every interest in living and working in a country in which markets are free, fair, equitable and not manipulated. That system has worked for the better part of our history.

      You are entitled to your opinion. I respect that. I can assure you that trying to socialize housing will only exacerbate our situation.

      In regard to caring about my fellow man…this blog is a public service and spreads a wealth of data, info, insights, and perspectives for people from all walks of life.

      Thanks for caring…with all due respect, so do I.

      • Peter S.

        LD, Thank you for the invaluable forum you so tirelessly provide. Your perspective and pursuit of transparency and integrity in the American fabric resonates in each of your post. The exchange of constructive counter opinions through Sense on Cents is both enriching and enlightening. Agreeing to disagree can lead to the debate, which ultimately and ideally can lead to consensus.

  • Nora

    Hi Larry, you know that I love you and respect and value your input on various issues,especially transparency and integrity, but Larry I must let you know that, I so disagree with you and this guy, Romney or rather!

    Let us practice what we preach Larry, with all due respect. the problem we are having with the financial institutions and our government is lack of transparency, lack of honesty and lack of proper regulations.

    when the banks created this monster called MERS, to supposedly keep track of mortgage notes as they are being passed from one wall street investor to another, they made the rules and they did not follow the rules they themselves made. They banked on securitizing home loans and student loans, credit card loans, etc. Through the shuffle and hustle, they screwed up big time, right?

    By doing this, they first of all took away Billions of Dollars from counties around the country when they supposedly recorded those notes internally instead of the traditional way it’s been done for centuries, secondly, they could not keep track of those very important and valuable instruments, and thirdly but not lastly, they unvalidated those instruments. Once those notes were securitized, sold to many different investors, they were no longer a negotiable instrument to the particular piece of land they are to secure.

    The so called banker-lender, were not loaning the homeowners any of their own money, the money was put up by the investors, the investors are the true owners of the so called securitized loans. the homeowners were not privy to any of the dealing, they were deceived by their bank into signing the notes to be sold on wall street. The value of the homes were inflated falsely, and so were the income of these homeowners, faulty signatures, and bogus assignments were made to support the securitized loans as well as to allow them to happen.

    The banks knew that they were using deceptive acts, and they knew that some of these unsuspected home owners will not be able to keep up payments for those loans, and they bid on them to fail one after the other. The very same banks and bank and or investment banks created the bubble and sat and watched it bow up, unfortunately in the faces of those unsuspected homeowners and the rest of the country.

    The reason I am going through some all of this is just to put some of these things in prospective. I know that you know more than most of us, because you are more of an expert on this matter and for sure the matter of the market. So when you say that you agree with Romney and think that the foreclosure process should be expedited and move them along so the market can recover, well I was hurt to say the least.

    I am one of those homeowners Larry, and I did not realize what had happened to me or to the many millions of these homeowners out there. I never questioned the banks because I trusted everything they did and say, how gullible you say, yes it was. Now when I lost my investments in the market like many people did, and then a hedge fund manager stole the rest of my savings in a ponzi scheme I was broke, but enough about me.

    The housing disaster, and the down fall of our economy was created by the very same financial institutions, so far everybody knows that. people, (homeowners) lost their jobs, and now they cannot pay what they thought was their lenders. So the lenders who caused the crisis, refused to help the homeowners as far as possible reduce the interest rate, etc. They could have done so even for a year or two till the homeowners could find a way to take care of their obligations.

    So our lovely banks knew that the reason for the scheme was to take way those homes and walk away with the money they made selling those notes and now the homes on top of that, a sweet deal isn’t it. I have to give it to them, a very clever scheme, and they took millions of these homes, even though, they are not the holders of the notes any more. They screwed up the homeowners, and the investors as well. It was the smartest highway rubbery, and now they are sitting on these homes, because, it feels good to owen half of the land of this country free but not clear.

    Well we all know that these homes cannot sell because most Americans who would normally buy, are broke, and the investors, well, they too cannot buy because the banks who foreclosed, don’t own the rights to those homes, LOL.
    Recently an investor in MS, bought a foreclosed home, demolished it rebuild and yet could not get title clarence because the person who still owned it, the foreclosed upon homeowner was still the title holder, LOL.

    So Larry, how can you move those foreclosure out of the way? You cannot, don’t forget that this whole debacle happened because there was no transparency or truth in the lending industry. And if we allow them to walk away with these homes free of charge, and not fixing the main issue of deceptiveness and lac of transparency, etc, etc, then we have accomplished nothing.

    You my dear friend, would be going against your own belief and conscious. we have to get to the bottom of the problem and clean out house, so to speak. Yes I can see that when you look at the situation with an economic sense kind of an eye, it would seem that passing it along as fast as possible would make sense. But, we cannot keep passing on fraud and crime, and deception any longer.

    The transparencies and the integrity and the truth and the reality of the issues must be dealt with, and that takes time. Now mind you I am looking at it from a personal side, I am a homeowner, or at least I thought I was! I’d like to think that fairness and justice prevails over what we have now. We cannot keep on sweeping these issues under the rugs. No Larry, I say NO, don’t just throw away those ethical rules and laws that should govern us. Don’t kick any more families out on the streets so that the economy can move, and some investor can make a good Dollar or two.

    We still have some humanity in us, and some heart, and you too Larry, and Romney I hope. You are not cold hearted, I know you are not. You are a man, a father, a husband, a human. I too am, a human, a woman, a sister, a mother, a wife, although not lately. I’d like to think that those who created this mess take heart as well.

  • Nora

    I just wanted to add that the reason I mentioned my personal issue is to show that because of the losses I took I was financially drained out, and that lead to economic hardship, which made me turn to my bank for help in the hopes that they would give me a break on the interest rate to lower my payments till I get back on my feet. I went through hell for over 2 years mind you while I was making full payments on the loan, and having to work 120 hours/week at my old age to do it.

    Many homeowners who found themselves economically challenged because of the crisis went through similar experience as I have. I was threatened and bullied, and lied to and given the run around, and had to expose all of my personal financial accounting to those banks, who I later found out had no right to any of this information, and have no legal standing whatsoever.

    When the banks gave up being true lenders and became middle man in a wall street transactions they gave up their rights as far as I am concerned. They cannot come back and force people out of the homes they invested so much of themselves into, with fabricated documentations so they can get the house.
    The bank’s system failed them and the homeowners to no fault but their own, and they refuse to accept and remedy the situation. You cannot fabricate documents that you lost to get back something you never had possession of!

    They could have remedied the situation from the beginning and modified those loans with the homeowners, but instead they didn’t, why, because they could not. It would have been against the SPA within the securitization, but instead of saying that, they gave the homeowners a horrific time wastingthe homeowners time, energy, losing their health and sanity to mention lives in some cases.

    No one in a civilized society or even uncivilized society should have to endure what the American homeowners had to in the last few years. A simple solution would be to let the homeowners who choose to remain in their homes to settle the matter with the investors or even through the true servicers, and both could have moved on sooner and perhaps those foreclosed homes would not be sitting empty now, filled with filth and coldness, to me that’s un American.

    I paid enough into my loans over and beyond what my home is worth, I put in 40% down of my home’s worth, and then $200,000.00 extra into remodeling it and giving it more value, and what do I get back when and if the bank who put nothing in it gets it free and clear?????

    One more thing Larry, more than losing money and or value into my property, which I though I had owned, more than holding on to it as my home, is the loss of respect and faith into the system. The banks ruined their reputation and our credit, they took away more than homes, they took away the dream the pride, the hope and the future. What a shame and what a failure!

    Things will be tied up in court in regards to these issues for some time, let’s have our politicians put efforts into fixing our system rather than putting money into the wrong hands. Not everything has to be profitable economically, I want them to show me and the many millions of hopeful Americans that they can honorably run their campaign for all the good of everyone, and not just look out for the money holders and the money makers. We want someone who can relate to the people who may have to vote and voice their concern to improve and not to destroy! Larry, I love you as my warm blooded cool hearted right minded human friend be well…

  • fred

    Nora,

    Your desired solution is obvious, massive debt foregiveness. But, neither banks nor this country can afford to assume that debt.

    Although the greater risk to our economy in the short term continues to be deflation; interestingly, in past historical instances of hyperinflation, some of the common precursors included massive outstanding consumer and gov’t debt, systematic debt foregiveness/debtor non-compliance and extended periods of neg real rates of interest.

    My favorite hyperinflation indicator, the ratio of gld:uup has more than trippled in the past 3 years and the trend continues higher! Be careful what you wish for.

  • Siddan

    LD, have always enjoyed your commonsense approach to writing on critical investor and economic issues of the day. Am unclear however on your position on the Housing crisis. You say standback and market forces will take care of the problem so to speak. But what about the massive fraud that took place on multiple levels??? how long do you suspect it will take for those issues to be adjudicated, satisfied? how many years? Is there an economic theory for that? You say market forces would be well on its way to correcting the problem had it not been for various gov’t interventions. Can you demonstrate / prove that? Are there any similarities between this housing crisis and the Savings and Loan bogus morgage loans in the 80s ? Hope you will write more on the housing mess down the road.






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