The National Taxpayers Union stated on Tuesday that with all the reports of a growing number of mortgage foreclosures leading to a flurry of proposed new laws and regulations for the mortgage banking industry, including government bailouts to help prevent Americans from losing their homes, the nation is in danger of considering proposals that could actually cause more harm than good.
“A government bailout is not a viable solution. The government bailout is only going to reward people who made bad decisions — both borrowers and lenders — and if we reward bad decisions, it’s only going to encourage more people to make these bad decisions in the future,” said study author Jacob Vigdor, Associate Professor of Public Policy Studies and Economics at Duke University.
Vigdor points out that while foreclosures rates for sub-prime borrowers are up, there is no evidence at all pointing to a pending “crisis”. “The only sure way to eliminate the high rate of foreclosures in the sub-prime market would be to eliminate the market entirely,” and this would effectively deprive approximately 94% of a certain group of Americans from realizing the American dream.
Vigdor also comes down hard on the “socialization” of the mortgage industry, where politicians are seriously suggesting foreclosure moratoriums, taxpayer-backed loans to troubled borrowers, and lender-restrictions that effectively rewrite mortgage contracts.
If these politicians were to have their way, the nation would find itself in a situation where “wealth is redistributed from the responsible to the irresponsible, from the ethical to the unethical.”
Other critics of the politicians and their “Socialist solutions” say that their proposals for the “fix” are far more troublesome than the sub-prime bust, but point out also that people, especially those in government, tend to look through the eyeglass in reverse at this issue. They also say that in the long run this latest debacle would mean very little for the U.S. economy.
Some economists have pointed out that historically about 10 percent of all sub-prime mortgage borrowers default and lose their homes, as they are already a higher risk for a lender for valid reasons; and today we are only witnessing about 14 percent of them defaulting, which is not much higher than the historical average.
They also point out that even if this rate of default were to climb to 20 percent, the United States is still better off than if higher risk borrowers were not permitted to own their own homes at all, which is a suggestion put forth by some politicians.
What’s more, they point out that “punishment” and “regulation” are already manifesting themselves in the bankruptcy or closing down of some of the lending institutions that did not give out their money with more care. And, it is wrong for politicians to act as if sub-prime borrowers are idiots who really didn’t have a clue what they were getting themselves into, and wrong to suddenly cry “predatory lending” when there is no evidence for this criminal practice having become widespread (lenders were encouraged and even pressured by Wall Street investors to create more loan programs to get more people into homes).
Nation Taxpayers Union (PR Newswire), “New Study Warns of Government Bailout Proposals for Subprime Lenders and Borrowers”