The Center for American Progress released a brief earlier this week where they asked Seven Questions They Hoped The Presidential Hopefuls Would Answer on how to solve the housing crisis. So far neither candidate has checked in with me to ask what my answers would be, but just in case, here’s CAP’s questions and my responses.
- What will you do to prevent more unnecessary foreclosures and keep more families from losing their homes? I would minimize government interference in the market. The U.S. government has been trying to defy gravity and market forces by trying different bailouts and programs, which have created uncertainty in the market. By allowing the market to find its own level, housing will stabilize more quickly, which benefits the economy. With a stronger economy, families will be in a better economic position and less likely to go into foreclosure.
- How will you address the problem of “underwater” mortgages? The taxpayer cannot and should not backstop malinvestment. ALL investment comes with a risk, and purchasing a home is no exception. Frankly, if the holder of an underwater mortgage finds the payment affordable, they can use the time honored solution of waiting for the market to turn around. If they can’t afford the payment, they need to find more affordable housing. When renters can’t afford an expensive lease, they have to find a place that’s cheaper. Underwater mortgage holders can go with the same solution. The house goes back to the bank and it will be recycled into the market as a more affordable home.
- How will you revitalize communities already hit hard by the foreclosure crisis? Nothing revitalizes a community like an improved economy. By focusing on economic development and not wasting money on bailout programs, people will be in a better position to invest in their communities and revitalize them.
- How will you meet the pressing need for affordable rental housing? By ending programs that artificially support home prices and that encourage lenders to keep properties in the shadow inventory. Lower prices will mean lower rents. There is a glut of properties out there. We have a government that doesn’t want home values to fall, but wants housing to be “affordable”. When you try and achieve this by making the taxpayer pay for it, you end up not with more affordable housing, but higher taxes and/or inflation. Just taxing the rich won’t solve that one either. It’s not just that I don’t like the “Robin Hood” approach– in practical terms, there aren’t enough rich folks to subsidize the rest of us.
- What will you do to assure that working and middle-class families can achieve homeownership in the future? The “American Dream” isn’t about assuring people that they can achieve homeownership or any other financial goal. It’s about assuring people that they will have the OPPORTUNITY to work toward their goals on a reasonably level playing field. By focusing on solid economic growth instead of “bubble economics”, government will give the maximum number of people possible the opportunity to obtain sustainable homeownership.
- What do you plan to do with the government-backed mortgage giants Fannie Mae and Freddie Mac, and what will take their place in the mortgage market of the future? I would greatly reduce the presence of Fannie and Freddie in the marketplace by allowing interest rates to rise. Artificially low rates have destroyed the majority of private lending and do not adequately compensate taxpayers for the risk they are bearing.
- How do you plan to protect households from predatory lending and discrimination in the U.S. mortgage market? We have not had a shortage of legislation to protect consumers from predatory lending. What we have had, however, is a lack of enforcement of these laws. During the boom there was the assumption that it didn’t matter because everyone was making money. During the bust, crooks are finding safety in numbers. There is no way that enforcement can crack down on all the perpetrators. I would especially like to see officers of the lenders held criminally liable when they are aware of and/or encourage excesses on the part of their employees. Too often lenders can settle for a “slap on the wrist” fine, and executives pay no penalties at all.