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Mortgage Crisis Solution Missing From Presidential Race

Image has not been found. URL: /wp-content/uploads/2008/09/frontrunners.jpgSen. Hillary Clinton (D-NY), John Edwards, Sen. Brack Obama (D-Ill.), Mike Huckabee, Sen. John McCain (R-Ariz.) and Mitt Romney (WDCPix)

Voters are heading to the polls today in a Super Tuesday contest that includes states hit hard by the nation’s mortgage crisis, including California, Colorado, Illinois, Minnesota and Missouri.

As that crisis has intensified, candidates on the Democratic side have ratcheted up the profiles of their plans to address it, debating the mortgage mess last week in Los Angeles and including it prominently in campaign speeches. The new emphasis comes as both Sen. Hillary Rodham Clinton (D-N.Y.) and Sen. Barack Obama (D-Ill.) try to attract supporters of former rival John Edwards, who made foreclosures a top issue and spoke about the problems of troubled borrowers with passion and intensity.

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Debt-150x150_4673.jpg

Illustration by: Matt Mahurin

Clinton, in particular, has tried to emulate the Edwards approach, saying last month in Las Vegas that she wanted to discuss foreclosures “in very real and personal terms.”

But not everyone’s inspired.

To some economists and housing activists, none of the candidates are exactly stepping up to the plate to take ownership of the foreclosure crisis and to put forth innovate proposals to address it — like calling for a ban on adjustable rate mortgages or giving borrowers facing foreclosure the option of remaining in their homes as renters. None of the candidates is seeking any sort of coordinated and comprehensive national response, despite some two million homeowners facing foreclosures in the near future. None has conveyed the sense of urgency that usually accompanies a crisis. Nor have they promoted a major overhaul of the financial services industry, in the same why they’re pushing for health care reform.

“I don’t think they’ve really thought it through very well,” said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal Washington think tank. “They’re just doing enough to show that they’ve come up with something. I think it’s a matter of just being cautious. There’s little incentive for anyone to stick their neck out on this.”

Wading into the foreclosure mess can be tricky politically, as Baker points out. Go after banks and lenders and you run the risk of alienating the powerful financial services industry, a major campaign contributor to both parties. Propose a foreclosure moratorium, then try to explain in practical terms how it would work; merely announcing the intention of such a freeze would most likely prompt a rush of foreclosures before Congress could even pass the proposal.

Push for loan forgiveness or a widespread mortgage rate freeze, and you might put off people who paid their mortgages on time and don’t want a bailout for house flippers and investors. What plays well in the Midwest, where longtime homeowners can’t pay their mortgages, might not go over quite as big in markets like California, where rising home prices during a housing bubble resulted in some borrowers buying homes they couldn’t afford, and walking away.

“It’s really a tale of two cities,” said Joseph Schilling, a Virginia Tech professor and urban expert. “In the fast growth areas they’re getting a lot of foreclosed properties in relatively new subdivisions. There’s a market-driven, speculative cause to these foreclosures. When you’re in a weak market like Flint, or Cleveland, or Buffalo, the foreclosure issues are different.”

On the Democratic side, at least, the candidates offer a contrast to their approaches.

Clinton has called for a wide-ranging freeze on mortgage rates for five years and a 90-day moratorium on foreclosures. She also supports sending $30 billion to the states to help borrowers obtain lower cost fixed-rate mortgages.

Obama supports a $10 billion foreclosure prevention fund, with the same goal as Clinton’s. But he opposes Clinton’s mortgage freeze plan, saying during the debate that mortgage rates would go up across the board and borrowers trying to get a mortgage would have a more difficult time.

The freeze is the biggest point of contention between them. Otherwise, they both also support tougher regulations for the lending industry.

In a scathing piece, Fortune Magazine writer Jon Birger called Clinton’s rate freeze plan “perhaps the dumbest solution to the current mortgage mess I’ve heard from a top presidential contender,” saying it would end up raising interest rates for new borrowers.

But Prentiss Cox, a University of Minnesota law professor, said Clinton deserves praise for at least proposing something. Obama’s failure to push for a rate freeze lets Wall Street off the hook, he believes. Cox supported Edwards and said his seven-year freeze was the best proposed solution.

Whatever you think of any of the Democratic plans, they amount to significantly more than what’s on the table from from the Republican side, where the response has been essentially non-existent.

Sen. John McCain (R-Ariz.) and Mitt Romney have talked generally about their sympathy for homeowners facing foreclosures. They also have have spoken in complimentary terms about a voluntary agreement the Bush administration hammered out with the mortgage industry in December, that would increase loan modifications and freeze interest rates for five years, but only for a limited group of subprime borrowers. Clinton’s rate freeze would apply to many more borrowers, including some who are late on their payments.

Mike Huckabee has talked a bit tougher on the mortgage crisis, blaming greedy borrowers and lenders alike. Still, he mostly supports Bush’s voluntary plan and opposes any bailout or government intervention.

But beyond that, the Republican hopefuls have had little to say, noted Peter Dreier, a political science professor at Occidental College in Los Angeles, Calif, and a board member of the National Housing Institute. He’s scoured proposals on the Republican side and come up with nothing. “The Republicans are basically off the reservation on this one,” he said.

Republican candidates don’t want to alienate their Wall Street backers anymore than the Democrats do, he said. And ideologically, Republicans believe in allowing the market to correct its own mistakes.

Still, what’s notable is what the Republicans aren’t saying, he and others pointed out. None of the Republican candidates is going out of his way to defend the mortgage industry or to stand up for Wall Street investment banks that profited from subprime loans. “I think it’s obvious to everyone that the mortgage industry blew it,” Cox said.

Dreier said he’s surprised McCain hasn’t jumped into the fray, at least to distance himself from any controversy, considering his background as a member of the Keating Five during the savings and loan scandal of the 1980s. McCain was among a group of senators accused of accepting campaign contributions in return for aiding the owner of a failed thrift under investigation.

By treading so carefully on the foreclosure issue, candidates are missing the opportunity to call for much-needed reforms of the mortgage business, many of which are included in a bill proposed by Sen. Christopher Dodd (D-Conn.), a former presidential candidate and chairman of the Senate banking committee. Dodd’s bill would, among other things, hold Wall Street banks accountable for buying abusive subprime loans and would more closely regulate mortgage brokers and lending industry tactics.

“It’s not enough just to help people out now,” said Dreier, “if you don’t solve this problem for the future.”

With the mortgage crisis - and the economy as a whole - expected to only worsen, candidates sooner or later are going to have to address the foreclosure problem in a more substantive way, both he and Cox said.

“There’s not a state or congressional district that hasn’t been affected by the mortgage crisis,” Dreier said. “Everybody loses when home prices are going down because of foreclosures. It’s a long-term problem.”

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