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I am not the only one raising hell about Sen. Mitch McConnell’s moronic, multi-billion-dollar mortgage entitlement plan.
Yesterday, I printed the Heritage Foundation’s letter to the GOP leadership assailing the Big Government proposal.
Today, Ed Glaeser weighs in with a WSJ op-ed: The GOP Has a Dumb Mortgage Idea; It contradicts the ideals of Republicanism and good economics.
For that reason, it is particularly disappointing to see Senate Minority Leader Mitch McConnell embrace “providing government-backed, 4% fixed mortgages to any credit-worthy borrower” as his alternative to the Barack Obama/Nancy Pelosi stimulus package. Our nation needs Mr. McConnell’s leadership, but this idea is bad economics and not a real alternative to the vision of America offered by Democrats. It also stands at odds with all that is good in Republicanism.
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This massive lending program is justified as a means of boosting housing prices. But over the past 28 years, a 100 basis point reduction in the interest rate has been associated with a 4.6% increase in housing prices. Today’s mortgage rates stand at 5.35%. If Mr. McConnell’s proposal dropped rates by 135 basis points, history suggests that prices would rise by 6.2%. This bump would be barely noticeable in markets like Phoenix, Ariz., where prices have fallen by more than 40%, and it would do little to stem the wave of foreclosures.
Modest price effects are likely because in many markets prices remain above long-run equilibrium levels. Places like Las Vegas, Phoenix and Miami are fortunate to have few regulations that restrict housing supply. As a result, builders provide abundant affordable housing. That ensures that prices always come back to supply costs, no matter what the interest rate.
Moreover, since lenders have recovered their sanity and are once again requiring appropriate down payments, buyers are more constrained by the need to come up with 20% of the purchase price than they are by interest rates. Today’s down-payment requirements and low interest rates suggests that mortgage markets are working well and have little need for governmental “help.” Has the GOP forgotten the lesson of Fannie Mae and Freddie Mac? Such help often does more harm than good.
They haven’t forgotten. They’re recklessly, consciously ignoring those lessons to show they are not “obstructionist.” They’re idiots.
I repeat: Spending beyond our means is what got this country into trouble in this first place. This kind of temporary political gimmickry is going to exacerbate the problem. Encouraging people to take out home loans before the end of the year when they should be saving their money instead? Artificially propping up the market and delaying a much-needed market correction? (And since Republicans are supposed to be about tax fairness, where’s the $15,000 renter’s tax credit?)
And I’ll repeat what Heritage said yesterday: “It should not be government policy to spend massive amounts of taxpayer money to subsidize those who don’t need subsidies, provide homes for those who cannot afford to keep them, and in the process destroy the private mortgage finance system. Trying to short-circuit the market’s resolution of the current housing situation will be both expensive and unlikely to succeed.”
Bad ideas all. Way to go, Senate GOP “leadership.”
Update: The National Taxpayers Union comes out squarely against the McConnell/Ensign/Graham mortgage entitlement.
National Taxpayers Union Vote Alert
NTU urges all Senators to vote “NO” on the Ensign “Fix Housing First” amendment to H.R. 1, the so-called economic “stimulus” package.
Language to buy up and convert mortgages to a 4% rate would exacerbate the many problems of our bloated federal government by effectively nationalizing tens of millions of loans. This policy, which repeats and worsens the problems with the federal takeover of Fannie Mae and Freddie Mac, will pile enormous expenses on the backs of already-struggling taxpayers. Though other sections of the amendment would eliminate many wasteful spending items and provide permanent tax reductions for low-income Americans, the noxious housing provisions regrettably outweigh these worthy proposals. Senators should instead vote for “cleaner” amendments proposed by Senators DeMint, Vitter, Coburn, Thune and others to provide stand-alone tax relief and spending restraint.
Congress has already enacted too many policies that distort the market and help to cause the misallocation of capital that has brought our economy to its knees. Heaping on more preferences for housing while further expanding the role of the federal government will only make our problems worse over the long term. Washington should be divesting, not enshrining, its taxpayer-backed loan portfolio.
Roll call votes on the Ensign amendment to H.R. 1 will be heavily weighted in our annual Rating of Congress.
If you have any questions, please contact
NTU Government Affairs Manager Andrew Moylan at (703) 683-5700
Update: FreedomWorks comes out against the GOP mortgage entitlement…
On behalf of hundreds of thousands of FreedomWorks members nationwide, I urge you to vote “No” on Senator Ensign’s Fix Housing First amendment to H.R. 1, as promoted by Senate Minority Leader Mitch McConnell. The Senator claims this act would “fix” the housing problem, considered to be at the root of so much of our current economic pain. However, far from fixing anything, this plan would create even more problems and rather than letting the market naturally adjust, will merely delay recovery creating bigger problems in the future.
The “Fix Housing First” amendment would offer government backed fixed mortgages at 4% to “any credit worthy” borrower either to purchase a new home or refinance. This plan, which reportedly could cost as much as $200 billion dollars, is a flagrant misuse of taxpayer funds and in essence creates a new housing entitlement fund and all for no recovery. The housing market, whose prices have long been artificially inflated, needs to find its market clearing prices. It will not recover in the long run from any amount of government prodding. In a scenario analogous to the failed TARP plan, pouring good money after bad doesn’t work. Spending our way out of debt doesn’t work. What does work is letting housing prices fall naturally to the point where more people can afford to purchase, removing the current glut of homes from the market.
Already, the U.S. massively subsidizes housing through the mortgage deduction, through the FHA, and through Fannie and Freddie – two institutions that are already suffering under a crippling load of bad debt. Another government program is not the answer to the problems we face in housing, and ripping scarce capital from the private sector only to place it into unproductive housing stock will make the broader credit crunch worse and make us all poorer in the long run.
We will count your vote on the Ensign/McConnell Amendment as a KEY VOTE when calculating the FreedomWorks Economic Freedom Scorecard for 2009. The Economic Freedom Scorecard is used to determine eligibility for the Jefferson Award, which recognizes members of Congress with voting records that support economic freedom.
President and CEO
Update: Club for Growth opposes the GOP mortgage entitlement plan…
The Club for Growth urges all Senators to vote “NO” on the “Fix Housing First” amendment offered by Sen. John Ensign, Mitch McConnell, and Lamar Alexander (#353). A vote on this amendment is expected today. This key vote will be part of our 2009 Congressional Scorecard.
This amendment would set up a government program that would offer a low interest mortgage to new and existing homeowners. This, in effect, represents a large intrusion by the government into the private sector that will negatively impact economic growth.
…The foundation for this bill rests on the notion that housing prices are below appropriate levels. But it is not clear that housing prices are too low. Washington politicians certainly do not know where the correct level should be. In addition, the proposal would also hurt banks when borrowers refinance from current interest rate mortgages to the lower one produced by this program. The last thing the federal government needs to do now is diminish the earnings of the banking industry.