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OPPOSING VIEW: It's still the American Dream
Federal housing policy manages to hit the daily double.
Start with President Obama's anti-foreclosure program, which gives homeowners who have taken on too much mortgage debt a chance at a federally subsidized refinancing deal. On Monday, his administration released a report saying that most borrowers who had entered the program have dropped out, often because they could not document their income. Last week, Fitch, one of the major credit rating agencies, predicted that most people who do get new loans will default within a year.
Chalk these up as more marks against the $50 billion program, which has been considered a disappointment even to some of its backers. But there is more here than another talking point for Obama's critics. The Home Affordable Modification Program, or HAMP, is merely the latest in a multidecade series of misguided policies to promote homeownership. These policies have accomplished little but drive up home prices and promote irresponsible lending and borrowing.
They are major contributors to the federal deficit and often assist people who don't need help. Tax breaks to homeowners will cost the Treasury $212 billion per year by 2012, according to the Urban Institute. That's about four times what is spent on homeland security. More than half of the total comes from the deductibility of interest on mortgages. The program is wildly popular, of course, because everyone likes a tax break. But its absurdity is evident in the fact that it applies to mortgages of up to $1 million. So average Joes are helping the rich live better.
Then there are Fannie Mae and Freddie Mac, the "government sponsored enterprises" that buy and guarantee mortgages. Now that they have collapsed, leaving a bill estimated at $381 billion, their repeated claims that they posed no risks to taxpayers have been exposed as falsehoods.
For all of this, what has the country gotten? Over the past half-century, the homeownership rate has risen only modestly, from 62% in 1960 to 68% at the height of the housing bubble. In Canada, which has no mortgage deduction or many of the other subsidies present here, the ownership rate is about the same.
Housing subsidies are like a narcotic. Once enacted, they quickly lose their potency. Buyers have more money to spend, so prices rise. Then, when a recession turns the high into a hangover, real-estate lobbyists and their allies clamor to up the dosage.
The HAMP program is a classic example. Helping borrowers who are in so much trouble that they will default even with much better terms is little but a gift to bankers, who will take less of a hit in foreclosure. It also raises questions of fairness about why taxpayer money is going to the most imprudent of mortgage holders.
Similar questions could be raised about why — after all that has been learned in the past five years about credit bubbles, and after many private lenders are now demanding down payments in the range of 20% — the Federal Housing Administration allows loans with down payments as little as 3.5%.
It's true that homeownership carries social benefits and that owners generally take better care of their properties than renters. But, as with candy and ice cream, there can be too much of a good thing. Any policy that simultaneously rewards irresponsible behavior, leads to huge government bailouts and subsidizes the rich needs to be rethought.
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