WDET News
- Presidential Candidates Look At Foreclosure Crisis
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Jan 8, 2008State Capitol - Link to Audio
Many Michigan homeowners are hoping the nation’s next president will solve the home foreclosure crisis. Michigan Public Radio’s Steve Carmody looks at what the candidates are proposing….
SOQ
Michigan’s home foreclosure rate ranked consistently in the top five states throughout 2007. The city of Detroit often posted the highest monthly home foreclosure rate among the nation’s largest cities.
But, home foreclosures are not confined to the state’s largest city. Jennifer Fitch is a development coordinator for the Community Action Agency in Jackson. She leads the agency’s programs for homeowners. Fitch says in the past two years she’s seen a spike in the number of homeowners in Jackson, Hillsdale and Lenawee Counties on the verge of losing their homes. She says she’s noticed a trend of two income families, earning between 40 and 70 thousand dollars a year, seeking help to fend off foreclosure…
“Its also like they were promised this great deal. They would do this adjustable rate for a short time and then they could refinance again into a lower rate. Well they’re into that 12 months. Then the mortgage company, for whatever reason, I’ve heard multiple different reasons, ‘Oh I’m sorry we can’t refinance you now.’ So their rate adjusts, 6, 7, 8 points, I saw one that went up to 21 percent. And they are doing anything they can to save that house.”
All the presidential candidates agree the rising number of home foreclosures is a problem. But they differ widely on how to address it. Democrats tend to advocate government intervention. For example, Hillary Clinton and John Edwards both support a freeze on changing rates for adjusted rate mortgage. Clinton favors a 5 year freeze. Edwards backs a 7 year freeze. They also want the federal government to help refinance defaulting borrowers… In a television ad that ran in Iowa...the Clinton campaign touts its plan while blaming Republicans and the mortgage industry for the problem…
PRIMARY Clinton ad -- “Hillary Clinton called for action on America’s housing crisis in March, in June and August. George Bush and Wall Street did nothing.”
But Michigan State University economist Charles Ballard says the aggressive government intervention, championed by Clinton and Edwards, may in the end, exacerbate problems in the financial markets…
“I think the real fear of either the Clinton or Edwards proposal, though the Edwards proposal goes a little bit farther, is that they would put so many restrictions on the market that they would dry up future sources of lending.”
Ballard is not sold on the approach promoted by Republican presidential candidates either. Mike Huckabee, Mitt Romney, Rudolph Giuliani and others contend it’s a market based problem that the market should be allowed to solve itself. Speaking at a presidential debate in Des Moines last month, Giuliani outlined the basic Republican ideal. Solve the nation’s home foreclosure and other economic problems by cutting government spending and use tax cuts to boost the economy.
“The strength of America is not its central government. The strength of America are its people. Restrain the central government. Give people more choice, more money to spend. We’re going to see our economy booming. That’s the kind of future where we can have unlimited dreams.”
Economist Charles Ballard says, given the size of the home foreclosure problem and the mortgage industry’s role in creating it, the financial markets may not be able to solve the problem without some federal intervention. He also suggests waiting for the problem to solve itself carries risks to the broader economy…
“IF the rate of foreclosures increases, what happens to the foreclosed house? Well then the bank is stuck with it. They’re probably going to sell it. They’re going to dump a house on an already depressed housing market. Further pushing down prices. And that could squeeze more value out of more people portfolios. Which then could put more pressure on the economy and help tip it into a recession."
Ballard expects whoever wins in November will propose a solution midway between aggressive government intervention and no intervention at all. Meanwhile at Jackson’s Community Action Agency, Jennifer Fitch is waiting for solutions to a multi-faceted problem…
“There’s got to be a variety of solutions. There’s not just one or two things that can be thrown at this problem to solve it.”
Fitch says educating homeowners and would-be homeowners about mortgages is one important step. To that end, the Community Action Agency in Jackson plans to hold its next homeowners class on January 14th, the day before Michigan’s presidential primary.