BLOG VIEW: If Mitt Romney wins the presidential election, it will be in spite of what he's said as a candidate, rather than because of what he's proclaimed. Lest we forget, there is that matter of a certain videotape that captured the former Massachusetts governor using some rather undiplomatic language while addressing a private fundraiser earlier this year. You remember that video – the one where the candidate identified nearly half of the country as moochers that never pay income taxes.
‘There are 47 percent who are with [Obama], who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you name it,’ Romney said.
Was this tactless and careless? Oh yes! And if Romney felt he could get away with secret meetings, then he is really behind the times. After all, we live in an age of cell phones that come with cameras – a lesson that Great Britain's naked Prince Harry has learned the hard way.
Romney's crack about too many Americans who believe they are ‘victims’ was considered insulting by many people who felt he took a broad slam at the elderly, the disabled, veterans who were injured Iraq and Afghanistan, and those in poverty. However, Romney was not wrong when it comes to housing – particularly on the thorny subject of principal reduction.
For its first three years in office, the Obama administration peddled a black-and-white fantasy that insisted all homeowners were victims of the housing crisis and all lenders were villains who existed solely to cheat people out of their homes. One of the most prominent administration officials who pushed this notion was Elizabeth Warren, back when she was the unofficial head of the Consumer Financial Protection Bureau (CFPB). In February 2011, Warren posted an extraordinary item on the CFPB blog that insisted the nation's lenders played the role of the treacherous Mephistopheles while the average American homeowners signed themselves into a Faustian bargain for the sake of three bedrooms, two bathrooms and a kitchen with granite countertops.
‘The system also permitted some borrowers to take risks that not only hurt themselves, but also hurt their neighbors by driving the value of property higher and then pushing it off a cliff when those borrowers defaulted on their loans,’ she wrote.
Aha, it was not the fault of the borrowers, but the ‘system.’ In Warren's world, Americans were victims of a corrupt ‘system’ that tricked them into undergoing the lengthy process of applying for a mortgage – and nobody prior to 2008 willingly took out a home loan they could not afford.
And what happened once the economy tanked and failed to come back? Well, there was a mad cry from many people that the federal government step in and use taxpayer money to help arrange principal reductions for people with underwater mortgages. More recently, the cry for government input on principal reduction has been taken to a state and municipal level, as witnessed by the lobbying for the so-called eminent domain strategy being pushed by Mortgage Resolution Partners, a group run by Steve Gluckstern, a former executive for Warren Buffett's Berkshire Hathaway Insurance Group and a major donor to President Obama's re-election campaign. (The White House has conspicuously avoided offering any direct comment on Gluckstern's antics.)
Even Christine Lagarde, the French politician who is the head of the International Monetary Fund, took time away from the euro debacle to engage in some trans-Atlantic lobbying by insisting that the Federal Housing Finance Agency enact principal reductions.
‘Fannie and Freddie have to be part of the equation,’ Lagarde said. ‘U.S. households have to be able to unload a bit.’
And why should the U.S. government get involved in helping household ‘unload a bit’? Well, to circle back to Romney, it is because there are people ‘who believe that they are victims, who believe the government has a responsibility to care for them’ – in this case, to step in and use taxpayer money to reduce the principal on their home loans.Â
Fortunately, there is some sanity in the administration. In February, U.S. Department of Housing and Urban Development Secretary Shaun Donovan became the very first member of the Obama administration to openly acknowledge that irresponsible homeowners played a role in the rise and collapse of the housing market.
‘Nowhere did we stray further from those values over the past decade than the housing bubble,’ Donovan said. ‘The irresponsible actions of some hurt millions of families. They were hurt by lenders who sold loans to people who couldn't afford them, by buyers who knew they couldn't afford them, and by banks that packaged and traded those mortgages to make profits that were nothing more than a mirage.’
It was unusual for Donovan to include borrowers in the same breath as lenders and securitizers. But, ultimately, it was amazing that it took over three years for an Obama administration official to put some degree of responsibility – even the vaguest and briefest slice of blame – on homeowners rather than totally dump everything on big, bad Wall Street.
Of course, the administration has yet to officially chastise homeowners who blithely walked away from their contractual obligations via strategic default, nor has any administration official ever acknowledged the billions of dollars that financial institutions have lost via borrower-coordinated mortgage fraud against lenders. After all, that would disrupt the notion of homeowners-as-victims and lenders-as-villains.
One of my favorite quotes regarding responsibility comes from Eleanor Roosevelt: ‘In the long run, we shape our lives, and we shape ourselves. The process never ends until we die. And the choices we make are ultimately our own responsibility.’
When people in Washington and across the country recognize and embrace what the great First Lady said, maybe then we can begin to have something that genuinely resembles an economic recovery.
– Phil Hall, editor, MortgageOrb
(Please address all comments regarding this opinion column to hallp@mortgageorb.com.)
(Editor's Note: Phil Hall will discuss the overlap of housing finance and politics on this week's edition of ‘Lykken on Lending,’ online at BlogTalk Radio.)
