With mortgage foreclosures at historic highs, Democrats and Republicans are fighting over a political issue that could have major implications in the 2008 presidential campaign.
Sensing an opportunity to win votes, the major presidential candidates have come out swinging; proposing a variety of prescriptions to ease the worsening housing slump.Both the White House and Democrat leaders in Congress agree that something must be done to stop the foreclosures.
Yearning to retake the GOP-controlled White House next year, the Democrats are clamoring for the federal government to do something, anything, to contain the crisis. The Republicans, on the other hand, are opposed to a government bailout for lenders, homeowners and speculators.
Meanwhile, the rising flood of foreclosures promises to become a major presidential campaign issue in the weeks and months ahead because an alarming 2 million American homeowners could lose their homes by November 2008.
Here’s what the major presidential candidates have to say about the growing foreclosure epidemic:
Democrats
The three main Democratic presidential candidates — Clinton, Obama and Edwards —have made various proposals for modest reform, including setting up a federal fund to help homeowners fend off foreclosure and providing borrowers with counseling, along with laws to ban predatory lending policies.
Democratic presidential front-runner Sen. Hillary Rodham Clinton wants to put an end to prepayment penalties for home mortgages and to set up a $2 billion federal fund to help homeowners avoid foreclosure. Clinton also wants the government to impose new disclosure requirements on mortgage brokers and curb their ability to dictate lending terms.
“We need to act now with smart, practical solutions to strengthen our housing and mortgage markets,” Clinton told The Associated Press. “We need to put an end to fly-by-night mortgage brokers peddling loans to unqualified applicants based on inflated appraisals.'”
By contrast, Illinois Sen. Barack Obama favors fining unscrupulous lenders. Like Clinton, Obama also believes in creating a home rescue fund. Writing in the Financial Times, Obama warned that the foreclosure crisis is “more than a temporary blip in our economic progress, it is a cancer that threatens to spread with devastating impact to housing and to our economy as a whole.”
Furthermore, Obama called for tighter mortgage regulation and blamed lobbyists working on behalf of lenders for obstructing tougher regulation of the subprime industry, adding: “The rules currently governing mortgages were written in the 20th century to make borrowing easier to understand for borrowers. We need to update these rules for the 21st century and enact the regulatory and disclosure laws that the mortgage industry has been lobbying against.”
Former North Carolina Sen. John Edwards — criticized for investing in a hedge fund linked to subprime lenders that have foreclosed on Hurricane Katrina victims — advocates a “Home Rescue Fund” (financed by taxpayers) to help millions of Americans homeowners who are at risk of defaulting on their loans and losing their homes. Edwards also wants to ban certain fees, establish uniform broker licensing standards and start a national database for disciplinary infractions.
Connecticut Sen. Christopher J. Dodd, chairman of the Senate banking committee, has held several hearings about predatory lending. Dodd wants to end penalties for early payment of subprime mortgages and to raise limits on the portfolios of mortgages held by Fannie Mae and Freddie Mac. “The power exists today with regulators to lift those caps,” said Dodd. “That does not require statutory language or new laws.”
Dodd also pointed out that many brokers give clients the false impression they’re working on their behalf. “Brokers should have to act either as agents of the borrower, thereby owing them a fiduciary duty, or as agents of the lenders, who would be responsible for the brokers' sales practices.”
Delaware Sen. Joseph Biden urged for more transparency in the operation of Wall Street hedge funds and private equity firms. “They are the ones that are causing this to go under, and there’s no transparency, no accountability,” Biden told The Washington Post.
New Mexico Gov. Bill Richardson — taking aim at President Bush and the GOP — called the current financial crisis the “the Katrina of the mortgage-lending industry,” referring to the 2005 hurricane that devastated New Orleans. Richardson added: “The president has let these people regulate themselves, and as a result, the necessary checks and balances have been overlooked. This must change.”
Republicans
Few if any of the nine Republican candidates believe that the government should start cutting checks to help struggling subprime borrowers, speculators and lenders.
Instead, President George Bush and his Republican allies have followed a laissez-faire approach to the markets for the past six years. Bush and other GOP leaders have rejected Democratic calls for a federal bailout in response to the housing crisis.
“It’s not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford,” said Bush last week, announcing a new package of measures aimed at alleviating the impact of the subprime crisis on homeowners. “The government’s got a role to play. But it is limited. A federal bailout of lenders would only encourage a recurrence of the problem.”
Among the steps Bush announced:
• Urging Congress to pass legislation that would allow more borrowers to get mortgages insured by Federal Housing Administration, either to refinance existing mortgages or for first-time homeowners.
• Changing the tax code so borrowers who win partial forgiveness of their debt don’t have to pay tax on the amount forgiven.
• Enforcing predatory lending laws and strengthening lending practices.
Several GOP presidential candidates agree with Bush’s new plan.
Former New York mayor Rudolph W. Giuliani believes in a hands-off policy to correcting the crisis. Like Bush, Giuliani is opposed to broad government intervention. “I think at most, more transparency, more information” should be added to the system. As president, Giuliani added, he would “not succumb to the temptation of trying to manipulate it too much and come in with a bailout.”
Mitt Romney, the former Massachusetts governor, has also positioned himself as small-government conservative. Romney believes the government should simplify the mortgage process, ensure that regulators better monitor the industry and punish “bad actors.”
Arizona Sen. John McCain wants to avoid a broad and potentially expensive bailout. McCain prefers to target assistance to borrowers who have been taken advantage of by lenders. He also would like to see more consumer education.
As the 2008 Republican and Democratic presidential caucuses approach, more candidates from both sides of the aisle are tapping into the economic anxieties of working Americans by introducing proposals to remedy the growing foreclosure crisis. With homes prices tumbling, foreclosures rising and a glut of unsold homes flooding the nation’s real estate markets, the relentless housing slide will continue to dominate the economic and political news in the months ahead.