How Housing Turmoil Could Hurt Republicans in ’08


By: Wall Street Journal

By CHRISTOPHER COOPER
October 15, 2007

The housing crunch is most severe in some of the most hotly contested political battleground states, a trend that could spell trouble for Republicans next year.

Six of the 10 states with the highest foreclosure rates in the country last month are considered by leaders of both parties to be swing states. They include the two biggest prizes of the past two presidential campaigns: Florida, which came in No. 2 on the list, with one foreclosure filing for every 248 households in September; and Ohio, No. 7, with one foreclosure for every 319 households, according to a survey by RealtyTrac Inc., a California property-research company.

Ohio’s industrial neighbor Michigan ranked No. 4 in foreclosure rates. Three Western battleground states — Nevada (No. 1), Arizona (No. 5) and Colorado (No. 8) — also make the list. President Bush carried all but one of those states in 2000 and 2004. The exception: Michigan, where he lost both times, but campaigned intensively.

The rash of foreclosures in the Rust Belt and the Sun Belt is almost certain to gain velocity, housing experts said. If housing issues become prominent in those states in campaigning for next year’s elections, it is likely to hurt Republicans, because they control the White House, and the party’s presidential candidates have been more hesitant than Democrats to address the issue.

“For better or worse, as the incumbent party, Republicans own the economy,” ISI Group Inc., a stock brokerage that specializes in policy research, said in a recent report. “Therefore, falling home prices, particularly if they lead to broader economic woes, will hurt Republican prospects for maintaining the White House and picking up seats in Congress.”

In the Republican presidential candidates’ first debate focused on economic issues last week, none raised housing concerns.

One reason for Republican silence may be that, for all the headlines about a housing crunch, the issue doesn’t rank high in national polls. In an early September Wall Street Journal/NBC News poll, when people were asked to name two items that should be “the top priorities for President Bush to address,” 7% cited “the home-mortgage and housing markets.”

Many states that may wield outsize influence on the 2008 presidential race saw a surge in subprime-mortgage lending, which helped fuel rising real-estate values and homeownership rates and now is spreading financial misery. From 2004 to 2006, lenders made $292 billion in high-interest-rate home loans in Florida, Ohio, Nevada, Arizona and Colorado, according to an analysis by The Wall Street Journal of data filed with federal regulators. That was about 20% of all high-rate loans in the U.S. Most home loans carrying high rates are considered to be subprime — extended to borrowers with sketchy credit or stretched finances.

Florida, Arizona and Nevada rank among the top five states in the growth of high-rate loans as a percentage of all home loans between 2004 and 2006. That suggests more possible political volatility since the increases are likely to cause a harder fall as housing prices sputter and adjustable-rate mortgages reset to higher rates.

Politicians of both parties in many of those states are springing into action. In Florida, Republican Gov. Charlie Crist signed a bill making “predatory” lending a felony, while in Democratic-controlled Ohio, the housing authority put aside $100 million to help troubled homeowners refinance their properties. In Nevada, Republican Gov. Jim Gibbons succeeded in getting mortgage companies to revisit foreclosure cases.

In Washington, congressional Democrats have begun discussing legislation to help homeowners, most of it aimed at cracking down on unethical lenders, rather than aiding borrowers.

On the hustings, Democratic presidential candidates have seized on the issue. Former North Carolina Sen. John Edwards has called for a policy that bars many predatory-lending practices and would make it easier for homeowners to declare bankruptcy to save their homes. New York Sen. Hillary Clinton issued a detailed policy paper on subprime lending that would impose restrictions on lenders.

“We think it’s going to be one of the hot topics of ’08,” said Justine Sessions, a spokeswoman for Sen. Christopher Dodd, a Democratic candidate for president. The Connecticut senator, who is chairman of the Banking Committee, has introduced a bill that, among other things, would place interest collars on mortgages, eliminate prepayment fees and bar mortgage brokers from steering consumers to high-cost loans, which often earn them higher fees.

Republican candidates have been more circumspect. “There are a lot of families that have been hurt,” former Massachusetts Gov. Mitt Romney, a former private-equity executive, said during an interview on CNBC, adding that helping them would “require some very careful attention.”

Many of Mr. Romney’s fellow Republicans have been similarly vague. Former New York Mayor Rudy Giuliani said Washington should refrain from intervening in the crisis and called for “more transparency, more information” to aid consumers. Arizona Sen. John McCain, whose home state ranks fifth in per-capita foreclosure rates, has said he would offer targeted assistance to homeowners who were swindled by mortgage brokers, but is opposed to broad government intervention.

–Rick Brooks contributed to this article.

Write to Christopher Cooper at christopher.cooper@wsj.com

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