Recently, candidate Mitt Romney released his vision for the future of the American housing market. Included in his proposal to fix the housing market is a combination of economic growth strategies and a strikingly vague list of how he’s going to stop foreclosures, dispose of vacant homes, and reform regulation. Some of these proposals sound familiar, such as his idea to “facilitate creative alternatives to foreclosure for those who cannot afford to pay their mortgage,” which in theory is extremely similar to Making Home Affordable (HAMP), a current Obama Administration program.
Unsurprisingly, he also supports the privatization of Fannie Mae and Freddie Mac, a popular position among Republicans since the Government Sponsored Enterprises were placed under conservatorship in 2008. What many people don’t realize is that if the GSEs are transitioned to the private market, this means that all mortgages will transition to standards set by the private market. While having high lending standards is certainly important and could have gone a long way to prevent the very housing woes we are experiencing now, the private market has responded with credit standards that are too tight even for responsible, credit-worthy borrowers. Eliminating the GSEs will likely make it even more difficult for Americans to obtain mortgages; without the financial backing of the Federal government, lenders will be even less likely to lend to borrowers who don’t have pristine credit scores and a 20% down payment.
His plan is more worrisome when taking into consideration his proposal to eliminate the Department of Housing and Urban Development. When asked what government departments he would eliminate if elected to office, Romney said, “Things like Housing and Urban Development, which my dad was head of, might not be around later.” In addition to providing housing vouchers for the lowest income Americans and funding for community development projects, HUD also operates the Federal Housing Administration. If his plan is to eliminate all of HUD, presumably it would also include eliminating the FHA. For many Americans without the means to make a 20% down payment, FHA loans are the only way to achieve homeownership. This is particularly true for first-time homebuyers, who haven’t yet built up home equity and don’t have access to the amount of cash necessary to make a 20% down payment. As the private market tightens lending standards, the FHA has frequently been the only alternative for legitimately credit worthy borrowers, growing from only 2% of mortgages prior to the housing crisis to 30% today. The FHA is crucial for many Americans trying to transition into the middle class; eliminating both the FHA and the GSEs could make the dream of homeownership suddenly unattainable for a very large percentage of Americans.
There is no quick fix for the housing industry or the overall economy, but Romney’s position seems to suggest that there are easy, step-by-step solutions that President Obama refuses to take. Preserving the ability of middle class Americans to achieve the goal of homeownership should be an important aspect (though, not the only component) of any candidate’s housing plan. Unfortunately, Romney’s plan, while well-intentioned, appears as though it will make that dream even more difficult for Americans to achieve.