Could rising foreclosures hurt Obama in 2012?

at 04:54 PM ET, 03/26/2012

After declining in 2011, foreclosures in many states are likely to spike this year, just as President Obama is facing reelection. Since the beginning of 2012, foreclosures have already risen in 21 states. That’s largely because of February’s mortgage fraud settlement that clarified which foreclosure procedures by banks are unacceptable, allowing backlogged foreclosures to move forward. Housing experts say that dealing with the foreclosures that have been held up is inevitable and must happen before the housing market can fully recover. But voters might not see it that way, particularly as they’re inclined to think that foreclosures are the single most important indicator of the health of the U.S. housing market.

(Don Ryan - Associated Press)
According to a recent survey by real-estate search engine Trulia, 47 percent of Americans say that “fewer defaults and foreclosures” give them the most confidence that the housing market is back on track, and 32 percent cite fewer vacant homes. And if foreclosures rise as expected, it may be challenging for the Obama campaign to explain that it’s because of the mortgage settlement, not a rapid downturn in the economy or the president’s own housing policies. What’s more, rising mortgage rates could put a damper on the administration’s program to prevent foreclosures through refinancing, as the costs will be higher for potential participants. Finally, rising foreclosures could also have a ripple effect: They could depress housing prices as well as home sales, with the risk of becoming a drag on the larger economic recovery as well.

Come election time, however, the Obama administration may be able to point to other indicators, like the unemployment rate, which have been slowly improving. What’s more, the mortgage delinquency rate has been declining and investment in residential real estate is finally rising, which are trends that could continue as well. Finally, the foreclosure rate may not rise as quickly everywhere, as some states handle foreclosures through the court system, which generally slows down the process.

Either way, however, it appears that voters will be watching the housing market closely in this election, and they’re inclined to think it will work against the president’s chances: According to the Trulia survey, 73 percent of Republicans and 57 percent of Democrats believe that housing will hurt Obama’s reelection bid — 65 percent of Americans overall.

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