OPINION:
If there’s ever been a poster child for the folly of government intervention, it’s the housing market. Decades of political manipulation set the stage for the collapse that sunk the entire economy. It’s going to be a long time before the country gets back on its feet, unless we embrace reform.
Last month, new housing starts fell to 571,000, down from last year’s figure of 606,000 and about one-third of the 2006 peak. As the housing market goes, so too does the construction industry, which has shed more than 2.2 million jobs in just over five years.
More than 800,000 properties are now owned by lenders, a similar number are in the process of foreclosure and 3.5 million mortgages are delinquent. Some 11 million mortgages, a staggering 22.5 percent of all American homes, may be underwater - where the amount of debt exceeds the value of the house. Such dire statistics are examples of what follows when government meddles with the market. Congress and the White House promoted loans that should never have been made in the first place. When owners defaulted, government turned to taxpayers to pay the bills.
Instead of learning the lesson of what happens when risk is severed from reward, both the White House and Congress seem to think more interference is needed, not less distortion. Two weeks ago, the Obama administration floated the idea of letting anyone with a mortgage backed by Fannie Mae or Freddie Mac refinance to the current lower rate of around 4 percent, even if the mortgage was underwater. That would have saved the homeowners a lot of cash but would cost Fannie Mae and Freddie Mac hundreds of millions of dollars. Ultimately, the bill would be passed along to responsible taxpayers because all those mortgages are ultimately backed by the government, which means us.
President Obama’s latest deficit-reduction plan proposes that Fannie and Freddie reduce taxpayer risk by requiring more mortgage insurance and charging lenders higher fees. This will result in shifting costs from taxpayers to borrowers, and it’s a welcome step in the right direction. The problem is it still envisions a permanent role for Fannie and Freddie, the government-sponsored enterprises that are a disaster.
Rep. Jeb Hensarling, Texas Republican, offered a bill to wind down Fannie and Freddie and force government to exit the conventional mortgage market. However, many of Mr. Hensarling’s Capitol Hill colleagues think the feds should continue playing a dominant role in the mortgage market. Competing legislation from other members would establish a public “credit facility” or establish new chartered mortgage guarantors. Doing so would only perpetuate the current problem.
Lenders are sophisticated entities with a lot of resources to decide whether someone is a good credit risk. When lenders have their own money on the line and know they can’t rely on taxpayers for a bailout, they will be more inclined to make smart calls. Until the housing market shakes itself out, the economy is going continue to struggle. It’s time for the bumbling federal government to get out of the way and let the market work.
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