How will Romney reconcile his view on foreclosure with the realities of Nevada?

A piece in The Wall Street Journal has former Massachusetts Governor Willard M. Romney walking the streets of North Las Vegas, Nevada and sticking to his guns on the foreclosure issue. Mr. Romney believes the foreclosure process should be allowed to run its course and put distressed properties into the hands of potential landlords.

First of all, Mr. Romney is right. A mechanism is in place to clear out the inventory and it should be allowed to work.

There is another issue here, however. What does this say about how we look at consumer debt and the decisions we make when it comes to purchases? Why do we leverage the purchase of houses with so much debt? Also, what type of role should government play in maintaining the value of homes?

About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
This entry was posted in consumer protection, debt, Economy, Elections 2012, Foreclosures, Mitt Romney, Political Economy and tagged , , . Bookmark the permalink.

One Response to How will Romney reconcile his view on foreclosure with the realities of Nevada?

  1. Kenneth Ciszewski says:

    “Why do we leverage the purchase of houses with so much debt?”

    This is partially a practical economic necessity. There aren’t many people who can afford to pay cash for a home, even a modest one. This has been true for a very long time.

    The expectations have been that the home buyer has enough income over time to pay off his mortgage loan, or can sell the property at a later time and buy something else, and the sale price is at least what the purchase price was.

    In the current housing market, these assumptions are false in more cases than they are true due to:

    (1) Unemployment
    (2) Stagnant salaries and wages
    (3) Lack of demand that prevents selling
    (4) reduction in home values due to lack of demand (demand is both the desire to buy, and having the money/credit worthiness to buy)
    (5) lack of credit due to stricter lending requirements (of course for a while, lending requirements were artificially too low, which caused part of the present difficulty) and not being credit worthy
    (6) Buying a house that the buyer cannot actually afford.

    These are some of the issues that cause the difficulties home owners are facing right now.
    In addition, the issues with mortgage-backed securities that contained unknown numbers of mortgage loans that were given to buyers that couldn’t afford to pay them was also a serious problem.

    Now, there are some other issues that explain why “…we leverage the purchase of houses with so much debt…”

    In the United States, we worship housing, literally. One of the major components of the “American Dream” is single family home ownership. Further, we think bigger is better, whether we need the additional living space or not. Very few families have more than two children nowadays, yet they often buy houses that are fit to use as a Bed and Breakfast or small motel. Builders, real estate agents, taxing authorities, mortgage lenders, and title companies all benefit from this belief, which tended to keep prices rising, except for the occasional correction due to the fact that prices were bid up to levels above which people could actually afford. This “bigger house” mythology makes builders, real estate agents, taxing authorities, mortgage lenders, and title companies richer, which is why there is no incentive to keep the price of housing flat or down, unlike automobiles, computers, DVRs, camcorders, etc. It also helped some mortgage lenders commit actual fraud, from what we can tell, by giving mortgages to people who couldn’t afford to pay them so the lenders could collect the commissions and fees, thus making them richer.

    It’s all about what we believe, and how we believe things should be.

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