President Bush got the government’s response to the housing crisis half right. The administration’s voluntary HOPE NOW program is the way to go, while his calls for more government intervention in the housing market will only distort an already troubled market.
It is essential that the federal response not reward bad behavior, permanently expand federal involvement in the Nation’s financial markets, or further empower government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac. The proposal to allow states to use their tax exempt borrowing privilege to bailout troubled mortgage borrowers could easily become a taxpayer subsidy to lenders who have engaged in poor underwriting standards, and to borrowers who irresponsibly took on more debt than they could service. With better options available, including the HOPE NOW program, there is little need for a more expansive and costly program. While the Administration contends that this proposal would only be temporary, Congress has a propensity to make generous subsidies a permanent feature of the federal reward system.
Similarly the proposal to expand FHA and GSE access to a broader segment of the mortgage market by substantially raising the dollar value of the mortgages eligible for insurance or purchase is a proposal in search of a problem. At present, qualified borrowers with adequate incomes for the debt sought, and who are capable of providing an acceptable down payment for the purchase of a house, have no problem acquiring the necessary mortgage credit from private providers to complete the transaction. Those having problems accessing mortgage credit are prospective borrowers with inadequate incomes, questionable credit histories or little or no financial assets. It was these types of borrowers who caused the problems we confront today, and should not be further empowered by new federal programs that may cause more such problems in the future.