President Obama gave a speech in Phoenix, Arizona earlier this week regarding the housing market, which has been rebounding lately.
The fear, however, is that rising interest rates will crush the recovery. The tone of the speech, per usual, is one of a typical campaign speech: “Ideas,” partisan jabs, and little substance. Obama outlines five ideas to “fix” what’s gone wrong with the housing market, and another four to “prevent” another housing crisis:
Step one is for Congress to pass a good, bipartisan idea, and allow every homeowner to save thousands of dollars a year by refinancing their mortgage at today’s rates. Let’s get that done.
It takes two to tango–or refinance–Mr. President. If banks aren’t offering lower rates to a homeowner, it’s because (1) they’re not credit-worthy; or (2) they’re underwater. A law forcing banks to lower rates on underwater properties is fundamentally unfair and constitutes a seizure of the private property of a lender.
Step two: now that we’ve made it harder for reckless buyers to buy homes they can’t afford, let’s make it easier for qualified buyers to buy homes they can. We should simplify overlapping regulations and cut red tape for responsible families who want to get a mortgage, but who keep getting rejected by banks. And we should give well-qualified Americans who lost their jobs during the crisis a fair chance to get a loan if they’ve worked hard to repair their credit.
What does this even mean? Is the President suggesting that “reckless buyers” who have repaired their credit be given a chance to make another “liar loan?” Is he suggesting removing a foreclosure or bankruptcy from homeowners’ credit reports? I am all about cutting red tape and regulations, but that suggestion is buried in typical Obama rhetorical nonsense spewed to generate applause from Obama zombies.
Step three is something you don’t always hear about when it comes to the housing market – and that’s fixing a broken immigration system. It’s pretty simple: when more people buy homes, and play by the rules, home values go up for everybody. According to one recent study, the average homeowner has already seen the value of their home boosted by thousands of dollars, just because of immigration. Now, with the help of your Senators, John McCain and Jeff Flake, the Senate has already passed a bipartisan immigration bill that’s got the support of CEOs, labor, and law enforcement. And considering what this bill can do for homeowners, that’s just one more reason Republicans in the House should stop dragging their feet and get this done.
wut? Was there some sort of CBO study that shows 15 million illegal immigrants are waiting with suitcases filled with cash to buy homes if they are given amnesty? Other than an attempt to revive the messy Senate Immigration Bill, I don’t know what’s going on here.
Step four: we should address the uneven recovery by rebuilding the communities hit hardest by the housing crisis, including many right here in Arizona. Let’s put construction workers back to work repairing rundown homes and tearing down vacant properties. Places facing a longer road back from the crisis should have their country’s help to get there.
If the housing recovery is booming, why does the government need to pay for workers to perform services for private companies? More subsidies to the housing industry are not a good thing and, like all subsidies, they distort the free market. Let companies hire on their own terms.
Step five: we should make sure families that don’t want to buy a home, or can’t yet afford to buy one, have a decent place to rent. In the run-up to the crisis, banks and the government too often made everyone feel like they had to own a home, even if they weren’t ready. That’s a mistake we shouldn’t repeat. Instead, let’s invest in affordable rental housing. And let’s bring together cities and states to address local barriers that drive up rent for working families.
As someone who lives in New York City, I can tell you what happens when governments invest in “affordable rental housing.” We call them “projects.” Creating more dependency on government for basic elements of survival is un-American and disastrous. As for “preventing the next crisis,” Obama outlines the following steps he wants to take:
First, private capital should take a bigger role in the mortgage market. I know that must sound confusing to the folks who call me a raging socialist every day. But just like the health care law that set clear rules for insurance companies to protect consumers and make it more affordable for millions to buy coverage on the private market, I believe that while our housing system must have a limited government role, private lending should be the backbone of the housing market, including community-based lenders who view their borrowers not as a number, but as a neighbor.
Well, Mr. President, you are a raging socialist. If you truly wanted private capital to take a bigger role in the mortgage market, you would get the government completely outof the housing market…
Second, no more leaving taxpayers on the hook for irresponsibility or bad decisions. We encourage the pursuit of profit – but the era of expecting a bailout after your pursuit of profit puts the whole country at risk is over.
Well, I can’t disagree with this point. As my readers know, I’m all for ending bailouts and taxpayer backstops.
Third, we should preserve access to safe and simple mortgage products like the 30-year, fixed-rate mortgage. That’s something families should be able to rely on when they make the most important purchase of their lives.
I am not sure what is being suggested here. Is Obama seeking to ban exotic mortgage products, such as 5/1 ARMs, or Adjustable Rate Mortgages, which serve a purpose when used properly? Again, the mortgage market should be left in private hands with borrowers and lenders meeting in arms-length transactions. Frankly, if someone is plopping down (or borrowing) a hundred thousand dollars (or more) to buy a home, they should do their homework on the terms of the loan and the risk — and this is directed to the borrower and the lender.
Fourth, we have to keep housing affordable for first-time homebuyers and families working to climb into the middle class. We need to strengthen the FHA so it gives today’s families the same kind of chance it gave my grandparents, and preserves that rung on the ladder of opportunity. And we need to support affordable rental housing and keep up our fight against homelessness. Since I took office we’ve helped bring one in four homeless veterans off the streets. Here in Phoenix, thanks to the hard work of everyone from Mayor Stanton to the local United Way to US Airways, you’re on track to end chronic homelessness for veterans by 2014. But we have to keep going, because nobody in America, and certainly no veteran, should be left to live on the street.
Aha! So Obama’s talk of winding down government involvement in the mortgage market –specifically Fannie Mae and Freddie Mac, the government entities that help securitize mortgages–is really just a ruse for more government involvement. The FHA is designed to help people obtain a house with very little down payment: as low as 3%, as compared to the typical 20% down payment. FHA borrowers pay insurance in the event that they default, so as to protect the lender. The FHA suggests that the costs to tax payers is nil. However, that assumes that the borrower does not default. I see this proposed FHA “expansion” akin to the Medicaid “expansion” under Obamacare. It’s a proposal to expand home ownership to poorer folks who would not be able to otherwise afford a sizeable down payment on a home, which provides an equity cushion. By this I mean that if a home costs $200,000, normally the borrower would need to come up with $40,000 down payment, so the lender has a cushion if the home drops in value and the borrower defaults. With an FHA loan, the down payment might only be $6,000. That’s a small margin of safety for the lender. Gee, loans being made for nearly the full value of the house. Have we seen this before? Spoiler alert: we sure did. See “Housing Crisis.” As always, free markets are better markets.