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Saturday, May 10, 2008

A Sensible Pol's Mortgage Perspective

This morning I was pleasantly surprised to read a piece by a politician that actually speaks sensibly about the mortgage crisis. Scott Garrett represents the fifth district of New Jersey and he penned a piece that gives me hope that the politicians may yet figure out this nightmare that is the mortgage crisis.

The bill, H.R. 3221, proposed by the Financial Services Committee Chairman Barney Frank, actually pays individuals to stay in their homes giving every homeowner who is in trouble a 10 percent equity stake in their home. On average, it could take three or more years for a homeowner to make enough payments to build up 10 percent equity. And now, the federal government is just going to hand it out? I understand that things are bad in the mortgage markets right now but I don’t think it is bad enough that people actually have to be paid to own their own home.

Where is the fairness in this proposal? What about the person who has been patiently sitting on the sidelines, saving up and waiting for the unsustainable prices to come down while paying rent every month and building no equity? Instead, Congress is rewarding borrowers who took out loans they could not afford to pay back, in many cases because they purchased a home that they could not afford?

Much of what Garrett says in the piece is an echo of things I have said. He doesn't dwell as far as I have into the consequences of some of the actions. He merely calls them unfair. In that he is absolutely correct, however a lack of fairness is only the beginning of the problems.

It it truly stunning that struggling borrowers will be rewarded by having their mortgage balances reduced. As Garrett points out, imagine if you are struggling borrower but are on time with your payments. Imagine if you hear about borrowers nearly going into foreclosure having not only their rates slashed but the loan amounts as well. Not only is this a terrible moral hazard, but it will lead to all sorts of litigation as well as class warfare.

Michelle Malkin has started her campaign to "wake up the silent majority" and she maybe onto something.

As the WSJ notes, there are 42 million Americans paying their mortgages on time. More than 20 million households own their homes outright and 35 million people are
renting.It’s time for the silent majority to speak up.White House
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I have already pointed out that I believe the politicians maybe misreading the proverbial political tea leaves on mortgage bailouts. There is a simple truth to this crisis. No matter how bad it sounds the overwhelming majority of people are making their payments on time. Thus, any bailout, let alone one for $300 billion, is one financed by the overwhelming majority for a small minority. While the politicians may in fact characterize struggling borrowers as poor and helpless, I do believe that most folks believe they should take responsibility for what happened.

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