OPINION:
President Obama says he has a “Better Bargain for America” to rescue the feeble housing market. He offers the usual clever turns of phrase, but it’s just repackaging of the same government intervention that created the subprime-mortgage crisis in the first place.
Mr. Obama chose to present his program for bailing out irresponsible borrowers last week, a few days before flying off to Martha’s Vineyard for his vacation in a $7 million home, a palace that most Americans could never afford. But the president’s scheme won’t discourage these Americans from buying beyond their means.
The most attractive element of the proposal would get rid of the government-backed mortgage giants Fannie Mae and Freddie Mac. This is an excellent idea — as far as it goes. Unfortunately, the goal isn’t to get the government out of the lending business, but to give the business to another part of the federal bureaucracy.
The president just can’t keep his hands off things he knows very little about. He wants to decide how best to structure lending, insisting that homeownership must be made “affordable” and that 30-year fixed-rate mortgages survive. Many developed countries, including Canada, have housing markets that work just fine without this type of mortgage. These are decisions that a private market is capable of making on its own.
Whenever the feds get involved with housing, they always make things worse. The Home Affordable Modification Program, which was supposed to save the 9 million families who owe more on their home mortgages than their houses are worth, is typical. The special inspector general for this program reports that just 800,000 homeowners made permanent modifications to their mortgages. Of these, 306,000 defaulted at a cost to taxpayers of $815 million. It’s a disastrous record, and the only thing the program accomplished is extending the pain for these families.
The 2008 housing market meltdown was caused largely by the government subsidizing credit to people who bought more house than they could afford. That will continue as long as the government backstops every bad decision. The Federal Housing Authority currently guarantees 90 percent of new mortgages, and Mr. Obama’s plan does not change that.
Home sales are beginning to recover from the crash, and a better way to help the market is to eliminate the Federal Reserve’s easy-money policy, which is designed to hold interest rates artificially low. When rates are low, lenders don’t get much reward for taking on loan risk. That makes them reluctant to lend to any but those with stellar credit.
The larger problem with the housing market is the lack of demand. With the economy still depressed and millions still unemployed, there aren’t enough people able to buy responsibly. Jobless rates for Americans aged 24 to 35, the group who should be first-time homebuyers, stands at 25 percent. Many of the millennials lucky enough to have jobs now face substantial increases in health insurance costs, or cuts in hours as Obamacare is implemented. Their chance at the American dream has been put on hold.
The president treats “housing” as if it were just one policy, but it’s not. Housing is related to every part of the economy. The surest way to increase homeownership is to declare kaput Obamanomics, Obamacare and the Fed’s easy-money policy. That would be the “Better Bargain for America.”
The Washington Times
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