Will the Foreclosure Crisis Be a Deciding Factor in November Elections?

1. Elections are all about perceptions, ideology and manipulation of messages. If the foreclosure crisis is the same as it is today on election day, Obama will win on this issue (even if he doesn’t win the election) because he is correctly perceived as attempting to fix it. Romney will draw some blood though on the issue of who understands the mechanics of derivatives and so-called securitization. He probably understands it better than Obama, which is not to say he will fix the problem. If foreclosures increase and economy starts diving again the prospects for a second Obama term will dim. If current efforts to hold the banks’ feet to the fire are stepped up and comparisons are made with teddy Roosevelt who “broke the trusts,” Obama will easily win not only the issue, but the election. People are scared. They want a strong leader who is willing to get his nose bloodied in a fight.
2. The banks are holding assets on their balance sheet that are far overvalued and they are being allowed to do it because if they were required to report the real value of the “mortgage” assets, they would collapse. While this involves some sophistication, people understand that everyone except the banks seemed to have taken a hit in 2007-2008. Court decisions a firm actions by regulators (on existing regulations) could force the mega banks into insolvency. Depending upon how the message comes out, Obama could either be seen as the trust buster or the guy that undermined the whole system. I prefer the trust buster so we get the banks out of control of congress.
3. If the pace of court decisions favorable to borrowers steps up, as it seems to be doing, the banks will fall and Obama will get credit for it without the risk of being seen as taking risky actions against banks that are too big to fail. There are 7,000 community banks and credit unions that can easily absorb all functions performed by the mega banks and probably at less expense and better service.
4. Nobody likes the banks but foreclosures are kind of a third rail. Despite the fact that the overwhelming majority of homeowners want their mortgages adjusted to the true fair market value at the time of origination of the loans, the banks and their lobbyists have most of the nation convinced that the borrowers are deadbeats wanting to get a free house by gimmicks and legal hair splitting. Anyone who runs against the banks is likely to get strong voter support, as long as they don’t come right on and say that the homeowners should get a free house. The finer point, that the banks never funded nor purchased the loans but are being allowed to foreclose anyway is probably too high-brow for this electorate — even though it means that the banks are getting a free house.

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