October 19th, 2011
Most people have focused on the first part of Romney’s let the housing market “hit the bottom” statement. That’s natural, since those three words were pretty objectionable. But it’s the last part of Romney’s statement that’s actually most indicative of his thought process and priorities.
“Don’t try to 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 and let it turn around and come back up.” — Mitt Romney
It is often by non-economists misunderstood
That letting the market “hit bottom” is good.
Hitting bottom is painful and destructive,
And rarely in itself economically productive.
The more homes are kept out of foreclosure, the sooner the market improves,
No matter how much Mitt of that development disapproves.
There’s only one group that profits from foreclosure pain
By buying up homes and reselling them for personal gain.
It’s the vulture investors who for profit others to misery condemn.
Is it any wonder Mitt Romney is siding with them?
Encourage more foreclosures? That would be a disaster
That would just keep the market from recovering faster.
And forcing people to rent back their own homes after vulture investors bought ‘em?
If that’s what passes for economic policy, then we really have hit bottom.
Mitt’s idea is to “let investors buy up” foreclosure properties at fire sale prices, then rent them out until the prices go back up, at which point they can sell them for a hefty profit. See, it’s win-win: the housing market (eventually) recovers, and investors make tons of money (very lightly taxed, of course, since it’s a capital gain). The only people out of luck are the homeowners Romney wants to see pushed into foreclosure. But hey, they can still rent their homes and then buy them back at a higher price from investors later.
Sounds just like Romney’s Bain career: making a profit from others’ pain. And the irony is, it’s not even good economic policy. The housing market will only hit bottom when excess supply is absorbed. What caused the housing market to crash was too much supply. The more excess supply, the longer that will take place, and the lower the “bottom” will be when it’s eventually hit. That lower bottom may mean greater profits for vulture investors, but it also means more pain and economic loss for homeowners, as well as greater losses for banks and mortgage owners. There are millions of homeowners who can save their homes if allowed to refinance at lower rates, but are kept from doing so by reduced housing values. Why not give them that chance? At the worst, if some are still unable to maintain payments, they can sell their home or be foreclosed on later. Either way, delaying that unfortunate event gives the market more time to recover, as do the homeowners who are able to save their homes. Win-win, except of course for the vulture investors, who aren’t able to make quite as much of a windfall profit.
The alternative—to allow more people to be forced into foreclosure—actually creates a vicious cycle that drags the housing market farther and farther down, dragging more people down with it, and inflicting more pain. As housing values drop further, more people are unable to refinance and take advantage of lower rates, more homes are underwater, and more homeowners end up abandoning their homes to foreclosure. Again, bad for everyone…except for the vulture capital investors. The best way to eliminate the “foreclosure overhang” that Mitt complains about: Try to keep as many homeowners as possible from going off the cliff in the first place.
Here’s Romney’s statement.