Common sense on the housing crisis
April 3, 2008 | By Nathaniel Ward
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Many Americans are facing hard times. High mortgage payments and falling home prices are hurting bottom lines across the nation, and many investors are suffering the market repercussions.
» Take our poll: Should the government bail out struggling homeowners at taxpayer expense, even if doing so rewards people who made poor decisions?
Congress is now considering misguided legislation intended to improve the economy by addressing this housing downturn. Instead of allowing free markets to work as they should, lawmakers seem determined to “do something” about the problem and pass a bill that interferes with the economy.
“There is precious little good Congress can do in the near term, and much harm,” warns Heritage Foundation economist J.D. Foster.
But since Congress seems bound and determined to act, Heritage experts have identified eight common-sense principles that would “reduce the chance that taxpayers dollars would be used to help the wrong people or would cause distortions in the housing market.”
1. Anyone who lied on their mortgage application — or made any major misrepresentations — should not be eligible for any refinancing assistance at all.
2. Any government assisted refinancing should be limited to homeowners who use that home as a principal residence.
3. Assistance should only be given where homeowners have used some of their own money for a down payment. Equity resulting only from write downs of the loan or government assistance is not sufficient.
4. No assistance should be available to speculators, investors, owners of second or vacation homes, Realtors, home builders, mortgage brokers or bankers, or anyone otherwise associated with the mortgage industry.
5. No refinancing assistance should be available if the homeowner has other assets that could be used to repay the mortgage or to repay equity lines of credit or a refinancing that substantially reduced the equity in the house.
6. Taxpayers should not have to guarantee the full value of a refinanced house. Any guarantee — by the FHA or any other taxpayer funded agency — should be limited to a portion of the loan only. The lender should bear the rest of the risk.
7. Participation must be voluntary. No lender or owner of a mortgage should be forced to participate.
8. All local and state government purchases of foreclosed homes must be voluntary. No homes should be taken by eminent domain.
The right solution for the housing crisis
The proper way to strengthen the economy and rescue the housing market is not government meddling but allowing free enterprise to operate.
“With housing values falling significantly in some cities and states, the values of related financial assets falling in tandem, and great uncertainty operating in many markets, the private sector is under tremendous strain,” Heritage’s J.D. Foster explains. “Yet, once again, market forces — individuals and firms in pursuit of their own best interests — are proving up to the task.”
For example, he notes that markets are adjusting to “the new, proper price levels for their troubled assets.” In addition, the market creates incentives for individuals and companies to learn from their mistakes.
“The sole role of government in this process is to ensure that markets are functioning, that full and accurate information is available, and that contracts are honored,” Foster argues.
Other Heritage work of note
- Protect America. Given recent unrest in Iraq, a plan “to pause the reduction of U.S. troops after the surge runs its course and subsides this summer makes eminent sense,” argue Heritage national security experts James Carafano and Jim Phillips.
- Energy and Environment. Heritage experts helped stymie radical environmentalists’ plans to have the Environmental Protection Agency impose onerous new economic controls as part of a global warming campaign. Heritage helped explain the dangers of this plan, and last week the agency simply asked for public comment on such regulations. A Wall Street Journal blog reports on Heritage’s role: “Critics of the EPA’s call for public comment on the implications of regulating greenhouse gases note that it closely resembles a proposal circulated on Capitol Hill in recent weeks by the Heritage Foundation.” Eighteen states have now filed suit against the agency to compel it to impose regulations.
- Entrepreneurship. Heritage economist James Sherk looks at why labor union membership is declining in the Fredericksburg, Va. Free Lance-Star: “Few Americans want a job with an employer who ignores their individual efforts. Yet that’s what labor unions offer employees today. Small wonder membership is steadily declining.” Treating employees as identical makes little sense in a modern economy in which individual effort and creativity are so important.
- Energy and Environment. “There are an estimated 20,000-25,000 wild polar bears today, up from an estimated 8,000-10,000 in the late 1960s,” Heritage Foundation President Ed Feulner writes in the Pittsburgh Tribune-Review. “Yet many environmentalists are pressuring the Department of the Interior to list the bear as an endangered species.”
- American Leadership. Documents recently captured from Columbia’s socialist terrorist organization FARC provide “a chance to make a thorough examination of a foreign terrorist organization that has brought misery to Colombia, death to American citizens, and serious harm to U.S. interests,” Heritage’s Ray Walser explains. “It also could mark a fresh point of departure for a redoubled effort to eradicate terrorism in the Western Hemisphere. “
In other news
- The Associated Press reports on good news from the NATO summit in Europe: “President Bush won NATO’s endorsement Thursday for his plan to build a missile defense system in Europe over Russian objections.” The defense alliance also asked Albania and Croatia to join its ranks.
- North Dakota voters may consider a ballot measure to limit abortion in the state.
- In elections Saturday, Zimbabwe’s voters ousted the parliamentary allies of President Robert Mugabe, whose oppressive statist policies have driven the African country to economic and political ruin. Results of the presidential election remain uncertain.
- Muslims now outnumber members of the Catholic Church, the largest Christian denomination, according to a statement from the Vatican. Christians as a whole outnumber Muslims, however.
- British scientists have manufactured a hybrid human-cow embryo, according to news reports.
- Georgia has made progress in giving parents real choice over their children’s education, the Atlanta Journal-Constitution reports: “The General Assembly on Tuesday gave final approval to a ground-breaking school choice bill that would eventually provide scholarships for children to leave public schools for private institutions.”
- In an effort intended to draw attention to global warming, governments, businesses and individuals turned off lights for an hour over the weekend. Economist and blogger Don Boudreaux points out that if we measure environmental virtue by non-use of lights, then impoverished North Korea is a global leader in this regard — as demonstrated in this stunning photo.
Coming up at Heritage
To attend these or any other events at Heritage please RSVP at Heritage’s website. Or you can view these events live online. All times are Eastern.
- On Friday, April 4 at 1:00 p.m., a panel of authors discusses the Scottish influence on American history and political development.
- On Monday, April 7 at 1:30 p.m., British MP Liam Fox and Kurt Volker from the State Department will discuss the recent NATO summit meeting.
- On Wednesday, April 9 at noon, Robert Smith of the Center for Private Conservation will discuss environmental stewardship and how it can work in concert with private property rights and limited government.
Nathaniel Ward is the Editor of MyHeritage.org—a website for members and supporters of The Heritage Foundation. Chris Albright contributed to this report.
