U.S. Housing Doesn't Need Another Government Bailout

Agenda-Setting Financial Insight.
Dec. 27 2012 10:33 AM

U.S. Housing Doesn't Need Another Government Bailout

56498745
Home prices may have stuttered in October, but they are up 4.3 percent annually

Photo by Tim Boyle/Getty Images

America’s housing market doesn’t need another government bailout. But the White House is mulling plans to rescue homeowners trapped by underwater mortgages and above-market mortgage rates by allowing them to refinance into cheaper government-backed loans. Luckily, its latest musings look like a pipe dream.

The Obama administration is considering two proposals, according to the Wall Street Journal, to fix a problem that has been vexing government officials for years. Many borrowers with private mortgages own homes that are worth less than the loan or whose interest payments are higher than the average 3.4 percent for a 30-year fixed-rate mortgage.

Some 900,000 borrowers fall into this category, according to Barclays and JPMorgan. One proposal would allow such borrowers to refinance into a cheaper loan guaranteed by Fannie Mae or Freddie Mac. Another would lower their monthly payments by restructuring their loans even if they aren’t in danger of imminent default.

Advertisement

The first plan, however, needs Congress to be on board. That’s unlikely. A raft of new guarantees would put even more taxpayer dollars at risk on top of the $188 billion Uncle Sam has injected into Fannie and Freddie. And plenty of lawmakers already want to dismantle the two failed housing agencies.

The second proposal has a better chance of moving off the drawing board since it doesn’t require lawmakers’ approval. Yet bondholders are likely to howl in protest. Loan modifications mean less cash flow for those who own mortgage-backed securities. If borrowers aren’t in danger of defaulting, it’s unfair, and imprudent, to punish investors who will be instrumental in reviving private capital’s role in home finance.

The blossoming recovery in the housing market also indicates that another government-led rescue isn’t needed. Home prices may have stuttered in October, but they are up 4.3 percent annually, according to the S&P/Case Shiller index. Meanwhile, a 12 percent rise in rental income is helping clear housing inventories as investors snap up foreclosed properties. And the Congressional Budget Office reckons that refinancing above-market loans would only prevent a small number of foreclosures. With animal spirits reviving, Washington should be planning its exit from dominating home finance, not extending its occupation.

Read more at Reuters Breakingviews.

TODAY IN SLATE

History

Slate Plus Early Read: The Self-Made Man

The story of America’s most pliable, pernicious, irrepressible myth.

Rehtaeh Parsons Was the Most Famous Victim in Canada. Now, Journalists Can’t Even Say Her Name.

Mitt Romney May Be Weighing a 2016 Run. That Would Be a Big Mistake.

Amazing Photos From Hong Kong’s Umbrella Revolution

Transparent Is the Fall’s Only Great New Show

The XX Factor

Rehtaeh Parsons Was the Most Famous Victim in Canada

Now, journalists can't even say her name.

Doublex

Lena Dunham, the Book

More shtick than honesty in Not That Kind of Girl.

What a Juicy New Book About Diane Sawyer and Katie Couric Fails to Tell Us About the TV News Business

Does Your Child Have Sluggish Cognitive Tempo? Or Is That Just a Disorder Made Up to Scare You?

  News & Politics
History
Sept. 29 2014 11:45 PM The Self-Made Man The story of America’s most pliable, pernicious, irrepressible myth.
  Business
Moneybox
Sept. 29 2014 7:01 PM We May Never Know If Larry Ellison Flew a Fighter Jet Under the Golden Gate Bridge
  Life
Dear Prudence
Sept. 30 2014 6:00 AM Drive-By Bounty Prudie advises a woman whose boyfriend demands she flash truckers on the highway.
  Double X
Doublex
Sept. 29 2014 11:43 PM Lena Dunham, the Book More shtick than honesty in Not That Kind of Girl.
  Slate Plus
Slate Fare
Sept. 29 2014 8:45 AM Slate Isn’t Too Liberal, but … What readers said about the magazine’s bias and balance.
  Arts
Brow Beat
Sept. 29 2014 9:06 PM Paul Thomas Anderson’s Inherent Vice Looks Like a Comic Masterpiece
  Technology
Future Tense
Sept. 30 2014 7:36 AM Almost Humane What sci-fi can teach us about our treatment of prisoners of war.
  Health & Science
Bad Astronomy
Sept. 30 2014 7:30 AM What Lurks Beneath The Methane Lakes of Titan?
  Sports
Sports Nut
Sept. 28 2014 8:30 PM NFL Players Die Young. Or Maybe They Live Long Lives. Why it’s so hard to pin down the effects of football on players’ lives.