Correction to This Article
Earlier versions of this article, including in the print edition of Tuesday's Washington Post, incorrectly referred to Peter Hart as a Republican pollster. Hart works for Democratic candidates and political organizations.
Foreclosure freeze leads to uneasy politics for Democrats

By Steven Mufson
Washington Post Staff Writer
Tuesday, October 19, 2010; 7:26 AM

The details of the foreclosure mess are ugly and complicated. The politics of it are even worse.

The calculus is clear for most Democratic incumbents, especially those in tight races like Senate Majority Leader Harry M. Reid: Nothing could be worse on the eve of elections than images of people being booted out of their homes by big banks that have relied on sloppy, if not fraudulent, paperwork.

But reviving the economy requires repairing the housing market, which won't happen until foreclosed properties and delinquent mortgages are dealt with. So the White House, which is looking past the midterm elections, has been restrained. Housing and Urban Development Secretary Shaun Donovan wrote over the weekend that "a national, blanket moratorium on all foreclosure sales would do far more harm than good, hurting homeowners and home buyers alike."

It's a recipe for legislative inaction, especially with lawmakers busy campaigning. For a White House seen by Wall Street as too populist, and by many liberals as too close to Wall Street, that might not be a bad outcome. Democratic candidates can strike a populist note, letting the Obama administration take the economic high road while pressing banks to define the scope of the latest financial mess.

"There's a problem here," said one veteran Democratic political consultant, who spoke on the condition of anonymity because of the issue's sensitivity. "The politics are very attractive to say, 'Let's have a moratorium.' But shutting down foreclosures has the potential of shutting down the whole housing market, which isn't helpful to anybody."

For now, most of the biggest banks, sensitive to political winds, have voluntarily frozen foreclosure sales. Some analysts believe the freeze could last until January. That gives banks until the end of the quarter to figure out the extent of their problems, and it delays foreclosures until after the election as well as the Thanksgiving and Christmas holidays.

"I think that they're trying to see how this is playing," said one political consultant working for the financial services industry. "They're trying to gauge the political intensity around the issue."

Democratic pollster Peter Hart says intensity runs high. "There are two things of critical importance to American households," he said. "One is their job and two is their house."

Hart said that the foreclosure issue resembles the unemployment issue. Ninety percent of Americans are employed and more than 9o percent of homeowners pay their mortgages, Hart noted, but "the real issue is the space it takes in peoples' fear and uncertainty. It is the number of people who say, 'This could be me.' "

Most Democratic consultants say President Obama has been able to stay fairly neutral because he isn't on the ballot and because broad economic recovery is more important.

All the same, some political veterans say that Obama could display more sympathy with foreclosure victims. Hart says that former president Bill Clinton, who presided over the booming '90s, is suddenly in demand on the campaign trail because, as Clinton once said, he feels people's pain. "It's not that Bill Clinton is an embodiment of good times, but that Bill Clinton understands the toughness of bad times," Hart said.

Obama and Reid represent the two poles of Democratic opinion - and political exposure.

Reid is running for reelection in Nevada, a state where one in six borrowers was delinquent on his mortgage at the end of 2009, where foreclosure filings hit one in 17 homes during the first half of this year, and where more than half of home sales were foreclosure sales in the second quarter of 2010.

"There's no question that this foreclosure issue is, in certain parts of the country, a huge issue, and anything that can be done to stop foreclosures is important," said Mark Mellman, a Democratic pollster working for Reid. "No one wants to seem like they're on the side of the banks."

Not surprisingly, Reid has called for a nationwide moratorium. "It is only fair to Nevada homeowners to suspend foreclosures until a thorough review of foreclosure processes is completed," Reid said earlier this month.

Other Democrats, including Rep. Chris Van Hollen (Md.), the head of the Democratic Congressional Campaign Committee, have also called for temporary bans.

Obama, by contrast, has been muted while administration officials call attention to dangers to the economy, neighborhoods and people seeking to sell homes.

A freeze in foreclosure sales also hurts private investors - including endowments, pension funds and mutual funds - who in good times greased the wheels of the real estate market by buying mortgage securities, but who have been largely absent the past two years. The void has been filled by government-owned mortgage agencies Fannie Mae and Freddie Mac.

"If the government wants to get out of the mortgage business, then private capital has to come in," said Barbara Novick, vice chairman of BlackRock, a big asset-management firm in New York. "We're moving in the other direction."

The foreclosure mess resembles many of the hot-button political issues earlier in the economic downturn, such as executive compensation. By opposing a national moratorium on foreclosures, Obama risks being seen as a friend of big banks.

HUD Secretary Donovan's article in the Huffington Post was a way to court liberal voters. "The notion that many of the very same institutions that helped cause this housing crisis may well be making it worse is not only frustrating - it's shameful," he wrote.

Because the foreclosure mess could cost banks billions of dollars, the president may have to decide again whether the banks are too big to falter at this point in the economic recovery. Some solutions might end up stowing some costs in Fannie and Freddie in less obvious ways, but taxpayers would still pay the price.

Another political factor: people struggling to keep paying their mortgages who are upset that deadbeat borrowers may get a break.

"I pay my mortgage every month; that was the deal I made," Kevin McGrath, a Virginia realtor, wrote in an e-mail. "I know I am currently throwing money into a depreciating asset that every day feels more and more like the Black Hole of Calcutta, but that's ok; I placed my bet, and I am willing to ride this pony until she breaks.

"But wait a minute; now I look over at my neighbor and I see he is in the same situation, upside down on his mortgage, except he has not made a payment in a year or so. He has multiple cars in his driveway, some of them newer than mine, he just got back from a trip to Best Buy, and he is still living in his house. There are all kinds of neat things to do with your money when your housing costs are zero. Where is my free rent?"

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