Speaker Boehner is wrong: Don’t delay new housing planby Peter Miller
The White House is out with a new housing plan, but not everyone is thrilled. Speaker John Boehner (R-Ohio) thinks the program is history, bad history.
“We’ve done this at least four times where there’s a new government program to help homeowners who have trouble with their mortgages,” said Boehner.
“None of these programs have worked,” he continued. “I don’t know why anyone would think that this next idea is going to work. All they’ve done is delay the clearing of the market. The sooner the market clears and we understand where the prices really are will be the most important thing we can do in order to improve home values around the country.”
Why government programs have failed
The question that ought to be asked is, “Why have government programs failed?”
For instance, in 2008–before the Obama Administration came into office–the government proposed “Hope for Homeowners (H4H),” a $300 billion effort to help the housing sector. The program was designed to allow borrowers to refinance into new, FHA mortgages.
So what did we get from this $300 billion program?
In fiscal year 2011, there were 632 H4H mortgages. That’s right: Millions of foreclosure filings were sent out in 2011 but only 632 owners–about one per state per month–were able to refinance through this program.
Speaker Boehner confuses the term “program” with “effective program.” Yes, H4H was a program and yes the FHA was authorized by Congress to insure up to $300 billion in new loans. But in practice, the program had no possibility of success–and many suspected it from day one.
Why H4H failed
Under H4H, struggling borrowers would be refinanced into a FHA mortgage they could “afford.” Then, first-lien lenders would have to write down a portion of the borrower’s principal and second—lien lenders “must agree to release their outstanding mortgage liens.”
But if the lender is being paid on time, why should it agree to lose money by allowing this refinance? Not only would the interest rate diminish and a portion of the outstanding principal be forgiven, second lien holders are getting nothing. Furthermore, the program was also designed for Uncle Sam to receive 50 percent of your home’s appreciation.
Why Boehner shouldn’t delay
Speaker Boehner might want to take a look at his own state to see why support for the housing sector should continue. According to RealtyTrac, pre-foreclosures in Ohio were up 43 percent last year. Only Michigan (68 percent) and North Carolina (44 percent) did worse. The foreclosure discount in Toledo is now 50 percent, meaning much of Ohio’s home equity has been destroyed.
Mr. Boehner, of course, did not slow the passage of the Temporary Payroll Tax Cut Continuation Act–legislation which delayed an increase in the payroll tax for two whole months but by law will raise both the FHA annual mortgage insurance premium and the cost of Fannie Mae and Freddie Mac services.
Given such realities, there’s no need to wait, no benefit to delay further. The market is already cleared out–just look at Speaker Boehner’s home state.