Realty Check

Congress And Housing Rescue--Nothing Yet That Really Helps

A home is advertised for sale at a foreclosure auction in Pasadena, California.
Reed Saxon

Before Democrats could even utter the words, “housing,” “rescue,” “FHA” or “predatory,” President Bush had already let the threat fly: “I will veto the bill that's moving through the House today if it makes it to my desk.” Nuff said, Sir.

So the House is now set to vote on a plan to expand the role of the FHA and allow it to insure $300 billion worth of newly refinanced home loans, if and only if the lenders agree to write down the value of those loans.

It’s estimated that would cost about $2.7 billion, and critics argue it would be far too risky, given that these loans would be given to borrowers with less than stellar credit. If the loans default, guess who pays? You and me.

So whom are we really helping here (not that this bill is going to get signed by the President any time soon)? Lawmakers know they have to do something, since housing is the key driver in the downturn of the economy, and tens of thousands of their constituents are in fact losing their homes.

But so many of the plans--and I don’t just mean the FHA plan or the plan to give a homebuyer tax credit or the plan to give $15 billion to states to buy foreclosed homes, or the Senate plan to give home builders a tax break--seem so off-the-mark on what will really save the housing market.

President Bush says the FHA plan would “reward speculators and lenders,” that is speculators who bit off more mortgage than they could chew and lenders who didn’t bother to check whether or not their clients could actually afford their loans.

I don’t know that it rewards lenders, because they have to take a hit on the loan, and most speculators don’t want to be refied, they just want to walk away and chalk it up to a bad investment. But I agree that the plan is too risky, because it’s betting on borrowers who are not only already in trouble but who are already used to someone coming in to bail them out.

I realize that lawmakers want first to help homeowners, because these are the faces of the crisis, real people losing real homes, but so many of these plans simply prop up home prices and keep faulty mortgages on the books.

In order for the housing market to truly correct and home ownership to get back on track, home prices need to correct and the mortgage market needs to fundamentally change the way it does business. That’s all going to hurt, but much like an immunization or resetting a dislocated appendage; it’s all for the greater good.

When someone in the administration or someone on Capitol Hill comes up with a plan that helps homeowners while still allowing the housing market to fully correct, I’ll vote aye.

Questions?  Comments?