No, no, no: Oppose the disastrous GOP mortgage entitlement
I have been warning you about Sen. Mitch McConnell’s terrible GOP mortgage entitlement plan. GOP Sen. Ensign is the main sponsor. Sen. Lindsay Graham has been talking it up.
Ensign was on the floor this morning pitching the amendment. He now says the “total cost would be under $500 billion” and would be “fiscally responsible.”
Bullcrap.
I’ve reprinted what Heritage Foundation says about the proposal below. The conservative think tank sent this letter to the GOP leadership. It comes to the same conclusion as I have:
“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.”
These squishy Senate Republicans who recklessly believe they need to add more senseless spending and increase Big Government to make the Generational Theft Act “better” and appear to be “for something” for p.r. purposes need to be schooled. Raise your voices: 202-224-3121.
Kill the bill. Stab it. Stick a fork in it. Then start over from scratch.
Previous:
Sen. McConnell proposes more Big Government to fix Big Government debacle
***
January 29, 2009
To: Interested Parties
From: Ron Utt, David John, JD Foster
The Heritage Foundation
Subject: Mayer–Hubbard 4% Mortgage Interest Plan
Recently, there has been a great deal of discussion about a mortgage refinance plan authored by Chris Mayer and Glenn Hubbard of Columbia Business School. While we appreciate the gravity of the housing situation and have great respect for the authors, their plan to refinance mortgages at very low interest rates would be a costly initiative and a massive new government intervention in housing and finance markets that would yield few if any of the promised benefits.
High mortgage rates are not the problem
Too-high mortgage rates are the least of the problems facing housing today, and mortgage interest rates on the open market are already approaching the level that they propose without government interference, mandates, or subsidies. In fact, the 5.25 percent interest rates first proposed by Mayer–Hubbard in the Wall Street Journal editorial are already below the rate offered to many borrowers, which led them to revise their proposal to a 4 percent rate.
The biggest concerns facing housing now are the low credit quality of the existing group of non-owners, the continued declines in home prices in many areas as previous speculative bubbles continue to deflate, the enormous stock of excess housing units, and the fact that the uncertainty of future employment is deterring many potential home buyers. A decrease in mortgage interest rates will do little to improve the situation.
As Mayer describes it, this new 4 percent mortgage interest rate will also be available to those wishing to refinance their mortgages, which he claims will add an extra $175 billion per year of disposable income to households and thereby provide a significant stimulus to the economy. Why we would also want to provide deep subsidies to those not needing them is unexplained, but the catastrophic aspect of this is that the $175 billion represents a transfer of income from the badly battered and nearly insolvent financial sector to 25 million relatively untroubled homeowners. Raising the purchasing power of individuals and families is sensible to stimulate the economy, but this should be done directly through reductions in marginal tax rates.
Mayer contends that this is a good time to implement the Mayer–Hubbard plan because “home prices have already fallen at or below where fundamentals suggest.” This assertion fails on two counts. First, housing prices are set locally. In some markets, housing prices were slightly elevated and have come down modestly; in others—largely those subject to restrictive land use regulations—they were highly inflated and may have further to fall to reach normal levels. Statements about housing prices nationally are almost always empty.
Second, if it were so obvious that housing prices were approaching normal levels, the market would respond accordingly. But with median home prices in many U.S. metropolitan areas still more than four to nine times median household income in the area, housing prices in many of the most distressed areas appear to remain well above their historic norm. With the housing finance industry now refocused on more responsible lending practices, house prices will continue to fall in these least affordable, and most troubled, housing markets as previous, lower quality borrowers are now properly denied mortgages on which they are likely to default and for properties they cannot afford.
Mayer further argues that this mortgage rate reduction will yield between 800,000 and 2.4 million additional home sales per year. This, too, is not supportable by any reasonable evidence. There are many econometric models of the housing market that might predict such an impact, but their results are largely determined by a long-term pattern of growing economic prosperity, rising home prices, and stable financial markets and are thus not valid in times of unprecedented turbulence and uncertainty, like the present.
One especially problematic operational problem will result from the fact that the lower mortgage interest rates under Mayer–Hubbard would be available to all borrowers regardless of whether they can afford their mortgages now. Already, mortgage lenders are swamped with the number of good-quality borrowers who want to refinance their loans to take advantage of the low rates available on the private market. This will only grow exponentially as homeowners seek to take advantage of the “once in a lifetime” lower rates. Faced with such a demand, lenders are almost certain to focus first on larger loans that provide the highest risk to the lender and second on the loans of good customers. The rest of the market will simply have to wait their turn.
In the long run, the 4 percent loan rate will have a strongly negative impact on private mortgage lenders. For one thing, once a borrower has refinanced at the lower level, he or she will be very unlikely to ever refinance again. Second, it is unclear from the Mayer–Hubbard proposal how markets will return to market interest rates. If there is a firm cutoff date for the subsidized rate, there will be floods of applications as that date approaches and inevitable complaints and suits from those who missed the deadline. If there is a gradual move to higher rates, it keeps the rates artificially low for an extended period of time, thus distorting the housing market for longer than necessary.
Finally, the market, not policymakers, is best suited to establish interest rates for specific loan products.
Problems with implementation
In contrast with his proposal for setting mortgage rates, Mayer’s proposed mortgage renegotiation process may be an improvement over the current situation. Whenever possible, lenders, borrowers, and the local markets generally are best served when a mortgage can be reworked so as to create a reasonable prospect of avoiding foreclosure. The magnitude of the current turmoil was not anticipated when common servicing arrangements with respect to third-party services were established. However, as past efforts have shown, renegotiating mortgages is far more complex than many appreciate, and the ultimate outcomes are often unchanged.
The Mayer proposal is intended to address problems arising from diverse ownership of mortgages that have been securitized and the legitimate fear of mortgage servicers that they could be liable if any of the owners object to the terms of a refinancing. However, a serious problem remains in dealing with the second mortgages that are often part of a financing package. Past evidence makes it clear that these complications are not minor and that they are not likely to be swept away easily.
What is clear is that to date, about half of the renegotiated mortgages have soon ended up back in default, and most responsible studies expect that level of redefault for future refinancings to persist. This should not be surprising for the subprime borrowers because they already had a checkered borrowing history in order to be eligible for the designation of “subprime borrower,” a situation that would not change now when the advantages of default are so much greater. However, the level of defaults is also increasing on mortgages where the borrowers had higher quality credit histories. Unfortunately, there are strong indications that these groups are also likely to have higher than expected redefaults.
Trying to preserve a vanished housing market
Although there is much to be said for trying to resolve the current housing problem in an accommodative way, the main flaw with the Mayer–Hubbard plan is that it is trying to preserve a housing market outcome in terms of both the absolute quantity of the housing stock and the prices paid for housing units that should never have happened in the first place. As painful as it is, what we are seeing now is a market slowly working its way back to an outcome that is sustainable.
When mortgage lenders and investors were picky about risk and limited credit to those who by experience, income, and wealth had a high probability of paying back the loan, the homeownership rate in the U.S. largely remained within the 63 to 65 percent range. This level of homeownership was constant in the U.S. from the early 1960s to the mid-1990s. With the growing acceptance of subprime mortgages, low- or no-downpayment loans, and exotic repayment schemes, previously ineligible households became eligible for credit, and this drove the homeownership rate up to 69 percent. Unfortunately, this level was unsustainable, and the housing market is in the process of working its way back to the long-term sustainable norm of 64–65 percent. A side effect of this process is that it will yield something on the magnitude of about 5 million “surplus” housing units that will no longer be owner-occupied.
Mayer, Hubbard, and others like them are attempting to reverse this process and use generous subsidies and interventions to restore a level of ownership that the market has just demonstrated was unsustainable even in good times. With the good times gone for an unknown length of time, the impossibility of their proposal having a successful outcome seems even more obvious.
What next?
This is certainly not an easy problem to resolve, and we appreciate the effort that has gone into discussing the Mayer–Hubbard plan. Unfortunately, their proposal is simply not an appropriate solution. The clear implication of available data is that this country will return to a sustainable level of homeownership and that this will leave many of the unqualified owners as renters who will need places to rent. Thus, public policy should be focused on ways to redeploy this surplus of formerly owner-occupied homes to rentals.
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.
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Lindsey Graham….what a tool.
Why not a limited time only $10,000 or $20,000 tax credit for working families that buy a house?
A smaller version of that could be done to stimulate demand for domestically manufactured cars.
Not a rebate, a credit that could applied to the amount of income tax owed. For those who actually owe taxes.
Those too poor to pay income tax probably shouldnt be buying houses or new cars anyway
They are not listening to us.
And they never will.
Most of the current crop of GOP Senators don’t know what the word ‘Conservative’ means, so why would they listen to anything the Heritage Foundation has to say?
These idiots were sold a plan by some liberal economists, and by God they’re sticking with it! no matter what!!
Fools….
I have to offer the observation that a major component of the stalled housing market ( and the downstream effect on our entire economy) is the fact that housing prices have fallen by 50 %.
Good borrowers cannot refinance, no matter how good the rates are, as there house will not appraise for lending. Houses can’t sell as people will not be able to satisfy their original mortgage. Basically it locks up the housing market and keeps us from recovery.
I am not saying spendulus especially in it’s current form is the answer. However, spending money in this area over global warming and STD’s and abortions is a vastly better use of OUR money. IF the government created a new RTC to offer 30 40 or even 50 year fixed mortgages WITH the ability for them to transfer with the sale of the home, it would kick start the housing market. In the alternative or even in combination, offering a mortgage at the appraised rate of the home would also allow the housing markets and sales to resume.
PLAN AA (Assist America)
1) Drill NOW Drill HERE= up to $700 BILLION each year that we KEEP in the USA.
2) No Entitlements for illegals, NONE. (look at California) that saves up to $100 BILLION every year… plus the illegals go home.
3) Extend the term(s) on ‘bad’ mortgages to 35 or 40 years, do NOT cut principle. Set a fair fixed rate like 5 1/2%.
3a) Mortgage runners (jingle mailers) can not mortgage anything whatsoever for fifteen years if they walk AND they still owe full unpaid balance until paid.
4) put $100 BILLION into SBA* for new businesses for this year** with a non-congress committee to approve/deny requests – loans from $10K to $250K tops.
5)Cut all federal income tax 50% for 3 years.
6)Eliminate death tax.
7)Eliminate Cap gains tax.
—
—
bonus round
Term Limits for congress – 10 or 12 years.
Fire and indict Barney Frank, Rangel, Dodd, Pelosi.
*SBA or similar
** repeat as necessary- annually?
Sweet Lord how many ways do you tell these tools, that this isn’t about their political careers?
NO tax credit. NO subsidised interest rate. No help for forclosures. SUCK IT UP!
The government SUCKS at fixing any individual’s problems and should quit trying. The market works. Free enterprise works. Capitalism works. Let what works fix the problem and you idiots with “good ideas” STAY OUT OF THE WAY!
Ok, so I’ve emailed Graham, Bond and Ensign so far. Next is McConnell but I have questions….
Does anyone have anecdotal info on just how much the emails/calls etc. effect a result? Or is it primarily radio and the blogs that are moving things?
500 billion???
FROM WHERE????
Laree – part of the problem is that they have political careers, instead of a job where you are paid for performance.
Thats a good and valid point but it’s ONLY an issue for people who MUST move. Whether its for a job or med/family emergency but those are the only reasons.
MAYBE a government backed ‘carry over’ of excess mortgage amount to new location on a must move basis only.
Not a dissolution of any amount, just a carry.
The fact is those of us who bought years ago or purchased recently in good standing with a proper mortgage, or those who waited and still pay rent should never have to pay for someone else to bail down their principle balance…EVER.
The idiots in Washington still don’t understand that it was the policies the pushed to allow people who are not qualified and should not be buying a house to do so. Instead of trying to fix the real problem, which is getting the people out of the system who never should have been there in the first place, they are proposing bailouts to keep them there.
Many here don’t know how much effect the staff (liberal permanent gov-employees) of Senate members have on the actions of their reps. In fact, they (staff) run the show 98 percent of the time.
Want real change – eliminate them, revert to staff from the reps home state, following practice of first 150 years.
Are there any GOP Senators with
a brainhalf a brain?Just what we don’t need , a bunch of over-achievers and big gubamint spenders in both parties..
Whenever I hear any solution to a problem in the form of “Government should do these things for those people”, I want to scream! That thought, those “good ideas” are the same type of thinking that brought us here in the first place. Government cannot help anyone without hurting someone else.
Should Gov be able to adjust a mortgage without consent fo the lender? What cost will be added to future mortgages to cover this possible expence? What about the losses to the owners (stockholders) of the lending company? Are legal contracts to be altered and voided at the gov’s whim? What if you were the seller and financed the purchaser yourself?
We need to get away from the idea that government can fix our personal problems, because they just take from our neighbors and our children to do it.
OH YEAH…as for the car companies, the auto industries?????? they don’t need a bailout, they need a gov-out!
ALL gov’t! stay out of the way, stay out of the auto industry….you’re ruining it. You’re killing the car biz.
Let them build the cars we want -that’s kinda why we buy them, remember?
We LOVE our cars!! This is AMERICA.
Again, let us buy the cars we want, not the ones you think will help cool the planet.
America1st said:
I sort of look at this differently, why are we/the gov’t addressing the needs of the borrowers who want/need to refinance and why are we addressing the needs of people who need to sell their home in order to buy another one?
The current %drop in the price of homes opens opportunities for people who were fiscally responsible and ready to buy a nice home. Ok, they may have to jump through hoops to qualify in today’s confusion but if they stick with it, they’ll get what they want. People lose jobs but resourceful/flexible people find jobs again. People get sick and have to pay medical bills and it’s a “long hard slog” but if they stick with it, most get through.
Abolish the Senate!!!
On February 4th, 2009 at 11:23 am, Virginia Patriot said:
On February 4th, 2009 at 11:33 am, jjmurphy said:
Depends on what you think they are listening to. I suspect the senators do not read all the mud fights in the comments section here. The thing is, in some areas where Moveon.org is running pro
stimulusliberal payoff ads the calls are running about 50% in favor, 50% opposed.IF these SOBs in the GOP would work to CUT SPENDING AND CUT TAXES instead of all the effort into “go along get along” it would help home buyers more.
The purpose of taxes should be to raise revenue to provide ESSENTIAL services and not set public policy. Cut the tax rate and we would not need all these phony deductions, credits and such.
If you could find a way to include a Stop Being Stupid Pill it might help. Seriously, it was the calls, e-mails and faxes that sort of stopped McCain-Kennedy, so yes they do help.
Scare the SOBs in the GOP. (sort of poetic isn’t it?)
the real name of this crap…..
BAILOUTS for BANDITS.
Yep, only postponing the inevitable, another crash of ‘banking’ lenders and housing in 5 years. We’ll never get out of this mess by using bailouts.
High risk buyers will just run away in a year or two.
BAILOUTS for BANDITS.
odd that barney frank started it all and now has this for a solution.
…might be called………the new BBB!
Barneys Bailouts for Bandits.
I just purchased 500 shares of the company that makes the ink used in U.S. paper currency. Does that help the economy?
The answer is to trust the American people, but government is conditioned to do the opposite so they try to manipulate the freedoms to fail and to succeed. A massive and sustained tax cut for individuals and businesses is absolutely needed, and a massive reduction in regulations is needed to stimulate risk taking and creativity.
Unfortunately, the Democrats in power are utterly conditioned to tax and spend to create a rose colored social equity system which, in the end, destroys jobs and the very vigor of society. Eurosocialism ought to have taught us a bunch of lessons about what not to do, but our political leaders are unwilling to understanding the message.
In all this depressing news I have a good story. Mr. K is flying to from Kansas City to LA via DFW airport. He just called having just arrived at DFW. He said first class seating was totally full and the majority of seats were taken by our military. (My guess is that any soldier flying from KC to DFW is on his way out of the country. Airlines are great about giving unbooked 1st class seats to our best and brightest.) Now the big deal was that Mr. K also noticed that a 2 Star General was sitting in coach! What a stud! Ok, back to sucky stuff…oops, can I use that word??
The article is spot on. Long story short, you idiots in DC meddled in the market to increase home ownership. Let the markets set the rates and prices is th only long term solution.
On February 4th, 2009 at 11:43 am, America1st said:
Not true. Did you read the article? Not being a smart*ss, just asking. Prices are regional not national. Here in Texas, particularly Austin, home prices have fallen slightly but nowhere close to 50%. In some places prices are rising. The bottom fell out of those markets that overheated (CA, FL, NV, AZ, etc) and as a reuslt must correct to “sustainable” levels as the article clearly states.
Why are they so upside down? Even if my home price fell 50% I would still be at break even. Why? Because I put 20% down and took out as short of a term as comfortably affordable. The majority are so upside down because they put $0 down and/or were speculating by continually trading up believing the prices would rise forever rather than staying in their original home (I knew many who were doing this). Of course, not all people did this and are the victims of bad timing. That sux, but I should not be asked to pay for their misfortune. Home prices rose artifically high for many reasons in these areas to a point where the average person just can not afford the payment. As a result, prices need to correct down and not be artificially propped up by the gov’t. Eventually, the market will correct the underlying issue by either drastically rising wages (increasing inflation) or falling home values.
I agree that spending taxpayer $ on something like your idea is better than this pork laden stimlus package the pols are offering up, but that is a false dichotomy. The real answer, again, is to let the markets set the rates and prices for a sustainable long term solution. The gov’t should not be propping up this bubble with taxpayer $ for many reasons. Not the least of which is the old addage, “the road to h*ll is paved with good intentions”. Once the gov’t gets invovled, they will never stop being involved.
DOES ANYONE IN D.C. UNDERSTAND THAT WE AMERICANS WORK IN OUR OWN SELF INTEREST MUCH HARDER THAN WE WORK IN THE INTERST OF THE COMMUNITY AS A WHOLE. THIS IS WHY COMMUNISM WILL ALWAYS FAIL. YOU ARE ASKING ME TO WORK TO PAY OFF THE MORTGAGE OF MY HOUSE AND SOME OTHER DEADBEAT. DOES HE HAVE 9 YEARS OF COLLEGE THAT HE PAID FOR, AND DOES HE SPEND 5 M DOLLARS PER YEAR TO EMPLOY PEOPLE AND ACTUALLY DO SOMETHING? I ALREADY PAY HUGE TAXES, BOTH BUSINESS AND PERSONAL, AND AS FAR AS I AM CONCERNED, IF YOU CAN’T INVEST IN YOURSELF AND SAVE YOUR MONEY, GET YOUR GRUBBY HANDS OFF MINE.
Time to start a running report card on how these people are doing with conservative principles!
Hey Cheapseat!
Don’t be so shy, tell us how you really feel!
Send these guys out for recess!!! No adult supervision appears to be present.
Isn’t there a conservative version of Harry Reid? Someone who fights for the cause of conservatism with as much energy and obnoxiousness as he has fought for liberalism? Who doesn’t care about anything but succeeding?
No, there isn’t, and I’ll tell you why. Liberals like Harry Reid and Nancy Pelosi and Barney Frank and Bar-hack Obama and all of their ilk are hard-core Machiavellians. “The end justifies the means.” They don’t care how they get what they want as long as they get it. And that is because liberals have no ethical core.
Conservatives are, almost by definition, too honorable to resort to such tactics. To lie and cheat and misrepresent and spread hatefulness is simply not a part of the conservative ethical core, and is a foreign and repugnant concept.
The liberal icon Saul Alinsky (“Rules for Radicals”) was himself a worshiper of Machiavelli (“The Prince”), but he magnified Machiavelli ten times. And Democrats have learned the style and practice it every day.
I guess this was sort-of a digression from the topic. But it’s something I have needed to say for a long time.
We do need fighters to be sure BUT NOT versions of Harry Reid, Oh Lord help us now but I believe he made only one Harry Reid. We know who the female version is and that should be enough.
The first thing a parent tells a kid with a scab is not to pick at it.
That’s exactly what these fools are doing. They keep coming up with these ridiculous ways to “help” us. Just leave us alone and everything will get better.
I am 65. I live on social security (I started contributing in 1958) and some part-time instruction. I just got an offer from Wells Fargo to refinance my 30 year mortgage at 5 1/2%. (Under Carter, that would have been 20%, children.)
Who needs this crapola bill????? Unqualified home buyers?? Isn’t that what got us into this mess??
-Sen. Lindsey Graham
Not too late to get on them.
Some of them seem a bit spooked.
Sen. Graham should be spooked, some of us want him tarred and feathered and run out of town on a rail!
Sen. Graham should be spooked, some of us want him tarred and feathered and run out of town on a rail!
On February 4th, 2009 at 5:15 pm, Virginia Patriot said:
The exact reason I posted that. It’s good to spook them.
Meanwhile Moveon is spooking senators Collins & Snowe from Maine.