mad anthony

Rants, politics, and thoughts on politics, technology, life,
and stuff from a generally politically conservative Baltimoron.

Sunday, October 05, 2008

The housing crisis speech I'd love to hear (but never will)...

I've been hearing a lot of politicians talk about the housing crisis, which often seems to involve the phrases "helping out homeowners" and "wall street greed". I'd like to hear a different perspective, and if a politician gave a speech like the one I propose, I'd vote for them, even if the rest of their platform included war on on Canada.

"Ladies and gentlemen, there has been many people of late who have proposed to offer some sort of bailout to homeowners who are behind in their mortgages and facing or are in foreclosure. While it is unfortunate that this is happening, the government should not do anything to help these homeowners. To do so is to punish responsibility and reward poor behavior, and that is the opposite of what government should do.

We have heard many stories in the press of people who have lost their homes. Some of these people have legitimate reasons - health problems, job loss, fraud. But people have had foreclosures and other large financial losses in the past, and the federal government has not helped them. But many of the people who are losing their homes are not victims of poor circumstances, but rather poor decisions. They bought houses they could not afford, in some cases where the payments exceeded their actual income. They signed mortgages with teaser rates, adjustable interest rates or payments, and failed to take into account how they would deal with these things if the house did not increase dramatically in value. They bought investment properties and claimed they were primary residences. Yes, in many cases they were encouraged by mortgage brokers, realtors, and others, but in the end they signed papers with the terms spelled out. In cases of fraud on the part of mortgage brokers, they should be prosecuted, but that doesn't absolve the homeowners of responsibility.

Fredrick Bastiat used the Broken Window Parable to illustrate hidden costs - that while someone breaking a window may produce revenue for the person who installs the glass, we don't see that that money would otherwise be used for something more productive. The same applies to help for homeowners. For every person who is behind in their house payments, there is a family still living in an apartment because they looked at the numbers and realized they could not afford to buy a house yet. For every person who hasn't paid their mortgage in a few months, there is someone else who has trimmed their budget to the bone, who is staying home and eating ramen noodles so that they can make the house payments they agreed to make. For every person who bought more house than they can afford and is mailing the keys back to the bank and walking away, there is someone who is staying in a house that no longer meets their needs, or in a city that they want to leave to pursue other opportunities, because they can't sell it without taking a loss but want to make good on their financial obligations.

To offer a bailout is to take money from the second set of people - the responsible - and to give it to those who were not so responsible. It is to reward poor decisions and punish good ones. Many of the proposals - reducing interest, reducing principle, delaying foreclosures - mean that irresponsible borrowers will end up with more house at a lower price than people who were responsible. And any proposal will cost responsible borrowers, both in terms of higher interest rates on future loans and higher taxes.

Home ownership is often seen as the American dream, and for a good reason. It gives people roots. It's an easy way to build savings. It gives people a place to call their own, raise a family, spend time with friends. It's a hedge against rising rent and a way to reduce expenses in retirement by having a paid-off house. But while it is a noble goal, it is not a right. Being foreclosed on is not the end of the world - people can go back to renting, rebuild their credit, and hopefully eventually buy a home again, with their eyes open the second time. But we shouldn't spend a huge amount of taxpayer resources - resources paid for those who were responsible - for preserving a privilege.


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