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Incumbents Beware: Mortgage Market Conditions Can Tip the Next Election
Friday, May 11, 2018

President Trump and Members of Congress know political strategist Jim Carville’s 1992 maxim, “It’s the economy, stupid,” still holds. Iran’s nuclear program, U.S. relations with Europe, and even battles over scandals matter much less to average Americans than whether they have decent-paying jobs. This week, a pair of economists refined the adage to, “It’s the mortgage market, stupid.” They admit it’s not “catchy” but they make a strong case for its veracity.

In their study,  “Mortgage Market Credit Conditions and U.S. Presidential Elections” Professor Charles W. Calomiris of Columbia University and Alexis Antoniades of Georgetown University looked at the psychology of voters in terms of economic risks and rewards. Basically, when people can finance a home purchase they chalk it up to their own hard work and success. But then they can’t, when their application is turned down, they blame Washington. A host of other factors notwithstanding, anyone running for re-election in 2018 or in 2020 who downplays the importance of the mortgage market does so at their own peril. It turns out mortgage credit could decide the presidency. 

Calomiris and Antoniades undertook a county-by-county study posing this question: What would have happened had the 2007-2008 housing credit crisis not occurred? It turns out that the shrinking availability of home finance options affected voters’ views, particularly in swing states, such as Florida, Indiana, Ohio and North Carolina, to a surprising degree. As noted in a commentary in the The Hill this week, the contraction in mortgage credit mattered to these voters a whopping five times as much as the rising unemployment rate.

Would this have been enough for Sen. John McCain, R-AZ, to beat Sen Barack Obama, D-IL, in 2008? Probably not, but it would have made it a much closer race. Heading into the 2018 mid-terms the country is more deeply and evenly divided than ever. In this scenario, pocketbook issues such as home finance could determine the fate of many elected officials and tip the balance of power in Washington.

Today’s elected officials should take little solace from recovery of the housing market in recent years. When lenders were giving houses away like candy in 2000 and 2004, in part due to a loosening of lending standards signed off on by Presidents George H.W. Bush and Bill Clinton, it did not translate into support for either Al Gore or George W. Bush. These policies did, however, play a role in in the housing market collapse in 2008 and the recession that followed, as responses to the study at the basis of the Calomiris/Antoniades paper indicate.

Ten years later, housing finance reform remains a backburner issue. The government sponsored enterprises, Fannie Mae and Freddie Mac, remain under the control of a government conservator, the Federal Housing Finance Agency. Their profits continue to be seized by Treasury, depleting their buffer capital and forcing taxpayers to make up for shortfalls. Congressional efforts to shut down the GSEs have fallen flat – and with good reason. The Trump Administration continues to hold off on using its statutory authority to end the conservatorship and implement reforms needed to restore stability and certainty in the home loan marketplace.

The figure politicians continue to watch most closely is unemployment. However, Calomiris and Antoniades conclude that, even when the unemployment rate is comparatively high, it is an abstraction for most voters. Even if the unemployment rate is 10 percent, the 90 percent of the population that is working seem to accept the status quo. On the other hand, when lenders reject loan applications it affects a larger swath of the population, including people with jobs, and voters hold elected officials responsible.

To be sure, that 3.9 percent unemployment can’t hurt incumbents seeking reelection but interest rates are on the rise, and at a faster pace than wages. Should people find themselves unable to get a loan in the coming few years, their impulse to blame Washington will be bolstered by the decade-long fiasco of Fannie and Freddie’s conservatorship and the political class’s inattention to housing policy. 

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Real Reform for Fannie & Freddie

Current legislation needs to be amended in order for all investors – pensioners, community banks and individuals – to be repaid and create a solid platform for the mortgage market to thrive.

  1. Repayment of Pensioners, Community Banks and Individuals invested in Fannie and Freddie.
  2. Stricter lending standards and oversight of Fannie and Freddie.
  3. Affordable housing goals reinstated and upheld under stricter oversight.

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Investors Unite works to educate Fannie Mae and Freddie Mac shareholders and lawmakers of the importance of reforming the GSEs in a way that will reimburse shareholders what they are contractually and legally owed, but have not been paid.

Issue Background

The United States Congress is considering Government Sponsored Enterprise (GSE) reform that would wipe out Fannie Mae and Freddie Mac shareholders for good. These shareholders include everyday Americans such as public service retirees, teachers, firefighters and police officers. These individuals and pension funds invested in the GSEs before, during, and after the conservatorship and should be made whole under any reform. Taxpayers have been repaid with interest for their 2008 bailout of the GSEs.

Our country’s respect for the rule of law demands that private property rights be protected and Investors Unite gives Fannie Mae and Freddie Mac shareholders a voice in that fight.