Hous­ing mar­ket fol­lies

The Washington Times Weekly - - Editorials -

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. Ear­lier this month, 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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