Image Credit Gage Skidmore

In the latest USA Today/Gallup poll, conducted May 10-May 13, 55% of respondents say that the economy will be better in a year if Mitt Romney is elected president, compared to 46% who say the economy will be better if President Obama is reelected.

These results are far from surprising. Nearly every poll since Romney became the presumptive Republican nominee has shown that Americans rate Romney better on the economy than Obama.

Just like Mitt Romney said in his April 24 speech, “it’s still about the economy, and we’re not stupid.”

But what has Romney done to prove that he would have handled the economy better than the President?

Over the next few posts, I’ll examine three of Romney’s most notable positions on the economy.

By the way, anyone who’s hoping to see another article about how Romney ruined companies and fired workers while he was CEO at Bain Capital will be sorely disappointed. This post isn’t about Romney’s record in the private sector. It’s about his record and statements on the economy and on the current state of economic stagnation.

Part 1: Foreclosures

In interviews and in the Republican presidential debates, Romney frequently said that the best thing for the government to do was stop intervening in the housing market with programs such as HAMP and HARP. According to him, the government should just let the foreclosure process run its course.

He said, “Allow investors to buy homes, put renters in them, fix the homes up and let it [the housing market] turn around and come back up. … The Obama administration has slow walked the foreclosure process … that has long existed and as a result we still have a foreclosure overhang.”

Sounds good, right? He is correct that there is a “foreclosure overhang” in this country. A foreclosure overhang happens when so many borrowers are behind on their mortgages that banks just can’t keep up. The problem is, Romney’s plan would have made the foreclosure overhang much worse than it is.

Let me explain how.

If the government had allowed the foreclosure process to run its course, many of the estimated 14.7 million underwater homeowners would have been thrown out of their homes.

Ignore, for a moment, the immense human suffering this plan would have caused. Foreclosures on such an immense scale would have resulted in an even greater supply of distressed properties on the market and would have added to the already significant foreclosure backlog.

It would also have further depressed property values, making more homeowners underwater, and it would have made the road to recovery even longer and more treacherous than it already is.

The Obama administration’s HAMP and HARP programs, on the other hand, have kept borrowers in their homes and kept them paying their mortgages, thereby reducing banks’ foreclosure backlogs. Borrowers that aren’t being foreclosed upon or evicted are also more likely to spend money on “luxury” items (items not crucial for survival), which helps support the economy.

In other words, Romney’s plan would have added to the “foreclosure overhang”, while President Obama’s has reduced it by reducing the number of people who are behind on their loans.

Where did Romney think investors and aspiring homeowners would get the money to buy all those foreclosed properties, anyway? Banks have become extraordinarily risk-averse since the housing market collapsed, making it exceedingly difficult for even the most creditworthy borrowers to get loans.

Even with government intervention through programs like HAMP and HARP, US home prices are just beginning to stabilize (maybe). How much longer would it have taken if Mitt Romney had been President during the housing crisis?

Of course, Romney changed his mind later at a campaign stop in Florida, saying that banks should “move on and start over away from those debts”.

Mr. Romney, we’ve seen your record on foreclosures, “and we’re not stupid”.

Come back tomorrow evening for a discussion on the effect Romney’s Detroit bankruptcy plan would have had on the economy.


About two weeks ago, one of my co-workers brought up the Home Affordable Modification Program (HAMP), complaining about how it was passed by the Obama administration merely as a populist, partisan trick.

According to this co-worker, HAMP has no practical purpose other than to make the President appear supportive of the many unlucky homeowners who are underwater – those who owe more on their mortgage than their home is worth – and in danger of losing their homes. As if being supportive of these people is a bad thing.

When he said this, it was everything I could do not to bang my head on the table. For those of you who don’t know, I work in the sub-prime mortgage due-diligence industry, helping the saps who invested in sub-prime mortgage securities lose less money than they might otherwise.

Frankly, he should know better. He sees every day how HAMP allows people to stay in their homes, when they would otherwise end up evicted or bankrupt.

HAMP was passed shortly after the collapse of the housing market, when declining property values caused homeowners to be underwater, or owe more on their mortgages than their property is worth.

If anything were to happen to an underwater borrower’s income, they wouldn’t have the pre-mortgage-crisis option of selling their property to pay off their mortgage, thereby avoiding eviction and foreclosure.

HAMP sets aside federal funding to compensate banks that are willing to reduce the amount that homeowners owe on their mortgages, generally also reducing their interest rate and monthly payment. This allowed many homeowners to keep their homes when they would otherwise have had to declare bankruptcy or let the bank foreclose.

It also benefits the investors who purchased sub-prime mortgage securities. Any borrower that is able to take advantage of HAMP is still making mortgage payments. Foreclosure, on the other hand, is expensive and banks will recover significantly less than is owed on the mortgage.

Of course, HAMP isn’t perfect. Banks were reluctant to implement it at first, it’s much more complicated than it needs to be, and it should have been better funded.

If it’s not already obvious, there are two major reasons why HAMP is such a big deal.

The first is that it keeps people in their homes. The rash of foreclosures that occurred after the housing bubble popped, and the resulting oversupply of cheap bank-owned properties, is one of the (many) reasons that property values have dropped as far as they have. Without HAMP, there would have been more foreclosures, resulting in even lower property values and more people without homes.

The second reason is that the economy is currently in what some economists call a “debt deflation spiral”. That is, individuals, families, and businesses are so focused on deleveraging (paying down debt) that they are unwilling to devote the same portion of their income to consumption as they did before the crisis.

The resulting weak demand, in the aggregate, is a primary factor in the extended slump that we have been experiencing since the crisis began. Consumers aren’t spending enough to return production to pre-crisis levels, so companies are unable to hire more employees.

In short, HAMP is good for borrowers, good for the economy, good for the investors that bought these securities, and it doesn’t hurt banks. HAMP and programs like it help the economy on the road to recovery.

One presidential candidate wants to expand this program and create more like it. The other lobbied against it and insisted that banks be allowed to foreclose on whomever they wished. You decide which one will be better for this country.