BLOG VIEW: Trash Fannie and Freddie, level the playing field for smaller financial institutions, eliminate the regulatory albatross that is Dodd-Frank and hey, let's discover the true value of U.S. real estate – those were some of the broad objectives vocalized by the GOP presidential candidates during the housing-market portion of Wednesday night's nationally televised debate.
And almost universally, the eight presidential hopefuls maintained that the foreclosure-avoidance policies enacted by the Obama administration have only slowed the market's recovery.
In a debate season that's been criticized for its dearth of substantive talk about the housing and mortgage markets, Wednesday night's event – the thrust of which was the national economy – provided a glimpse into the candidates' housing strategies that has so far been hard to come by.
Several of the candidates – including one of the pack's front-runners, Herman Cain – emphasized that the housing market, consumer confidence and the broader economy are all intertwined. When asked specifically about the government-sponsored enterprises (GSEs), Cain said "you don't start there," and he instead emphasized his 9-9-9 tax plan and the need to deregulate small financial institutions.
When CNBC's Steve Liesman forged ahead with his line of questioning, Cain said Fannie Mae and Freddie Mac should be wound down, although he stated that could only happen after the economy improves. (It's unclear whether the designers of SimCity 4 included a template for fully privatizing the mortgage market.)
"You don't start solving a problem right in the middle of it," Cain said of Fannie and Freddie.
Several of the candidates indeed looked their most comfortable beating up on the GSEs. Similar to Cain, Rep. Ron Paul said the companies should be eliminated, adding that Fannie Mae and Freddie Mac continue requesting bailouts because "they're in big trouble."
"Fannie Mae and Freddie Mac are demanding more money because we don't allow the market to determine what these mortgages are worth," he said. "If you don't liquidate this and clear the market, believe me, you're going to perpetuate this for a decade or two more, and that is very, very dangerous.’
Paul also reliably took shots at Ben Bernanke, arguing that the Fed chairman's policies are speeding the nation toward inflation.Â
When he was asked why there was no mention of housing in his 59-point jobs plan, former Massachusetts Gov. Mitt Romney replied, "Because it's not a housing plan; it's a jobs plan."
In declaring last month that the government should let home prices hit their bottom, Romney became one of the first GOP candidates to take a stance on foreclosures. When asked Wednesday night whether he was willing to allow home prices to fall back to 1999 levels, as some economists project they could, Romney asked Liesman rhetorically if the federal government should "go out and buy all the homes in America."
Enlarging the government's role in housing during a time of market duress is the "wrong way to go," Romney said.
"Let markets work," he said. "Help people get back to work. Let them buy homes. You'll see home prices come back up if we allow this market to work.’
Like the GSEs, the Dodd-Frank Act was an easy punching bag for candidates Wednesday night.
According to Cain, there were three fundamental problems with last year's financial reform legislation. First, the Dodd-Frank Act did nothing to address the GSEs. "And we all agree that that was a catalyst for the meltdown in 2008," he said.
The two other biggest problems, according to Cain: "Dodd and Frank."
Former House Speaker Newt Gingrich said the legislation "kills small banks," and he claimed federal regulators are "anti-housing loan." Gingrich also encouraged easing the rules for short sales.
"Today, the banks are actually profiting more by foreclosing than encouraging short sales," Gingrich said, which I can only imagine was an indirect reference to subordinate lienors' jamming up transactions.
Chris Harwood, one of CNBC's moderators, asked Gingrich about a $300,000 contract that Gingrich's firm entered into with Freddie Mac in 2006. Gingrich insisted he did no lobbying and only provided advice "as a historian."
"I offer[ed] them advice on precisely what they didn't do," he said, although WaPo's resident fact checker, Glenn Kessler, has already concluded that Gingrich "certainly appears to be playing down his public role as a cheerleader for institutions like Freddie Mac."
Harwood's inquiry initially appeared to put Gingrich on his heels, prompting this tweet from comic Patton Oswalt: ""You asking me? What? What was that? I'm scrambling for time to think here. What say?' -Newt Gingrich."
The evening's crossover-appeal award undoubtedly went to former Utah Gov. Jon Huntsman, whose housing-related sound bites could just as easily have been overheard at an Occupy Wall Street rally. He was the only candidate to seize the obvious opportunity to empathize with struggling borrowers who are upside-down on their mortgages, saying, "They are feeling real pain."
"These issues are very real," Huntsman continued. "They are complicated. For us to say that there is an easy solution to housing, that's just not right, and that's not fair.’
Taking it a step further, Huntsman expressed a desire to "right size" banks. To support his point, he pointed to the example of Goldman Sachs, which he stated went from a $200 billion institution in the 1990s to a $1.1 trillion company in 2008. Huntsman proposed charging the banks a fee that mitigates systemic risk that could lead to taxpayer exposure.
"There has got to be something that takes the risk from the taxpayers off the table so that these institutions don't go forward with this implied assumption that we're going to bail them out at the end of the day," he said.
Texas Gov. Rick Perry, for his part, did not refer to the GSEs as Fannie Mac and Freddie Mae.
– John Clapp, editor, Servicing Management
(Please address all comments regarding this opinion column to clappj@sm-online.com.)
