Hot on the heels of its $307-billion farm-bill giveaway, Congress is plunging into another multi-billion-dollar spend-a-thon. The next targets of its affection are mortgage holders, soon to be seduced with other people’s money. Maddeningly enough, part of this courtship will be billed to America’s 83 million equity-starved renters who only fantasize about home ownership.
The House has approved and the Senate presently will consider legislation to provide federal insurance for $300 billion in refinanced home loans. Taxpayers will have to shell out hard cash if borrowers default on this government-guaranteed debt. This new program is expected to cover just 500,000 to 1 million homes. Thus, these taxpayer-insured mortgages would average $300,000 to $600,000. This is not exactly low-income housing.
This bailout, the Wall Street Journal reports, would cover more than just those Americans who struggle to pay their mortgages. It also would benefit those whose home prices have sunk below the value of their mortgages. It is unfortunate if someone possesses, say, a $1 million mortgage on a home now worth $900,000. But so long as that person’s monthly mortgage check does not bounce, there is no reason for government to rush to the rescue. Impending homelessness due to negative cash flow is one thing. Steady, positive income that finances a lifeless housing investment is something else and does not merit public relief. Only 2 percent of mortgages are in foreclosure. The balance are current or at least manageably in arrears.
Congress’s lavish scheme is a particularly shabby deal for renters. While politicians routinely ignore apartment-dwellers and other renters, people like us inhabit 34.7 percent of America’s 108 million households, according to the National Apartment Association. More than one third of U.S. homes are rented, yet rent payments are not tax-deductible, as are mortgages. Where is the social justice in that?
This massive bailout will suck tax money out of renters’ bank accounts and swallow savings that some are salting away for home purchases. If this plan achieves its purpose, residential prices will rise again, pushing the American Dream of home ownership back above many a renter’s reach.
Congress could level this playing field by making rent checks as tax deductible as mortgage payments. Despite being totally overlooked amid the political pampering and promises that homeowners enjoy, renters are no less patriotic and decent citizens than mortgage holders. And if there is something unsavory about occupying apartments rather than actual houses, that’s fine. Just kindly pry Uncle Sam’s sticky fingers off of our unsavory wallets every April 15.
Is there a sunnier path out of this swamp?
Banks that hold mortgages should let borrowers with financial troubles pay a portion of what they owe every 30 days, on a month-to-month basis. Meanwhile, prospective new owners could inspect these homes. If owners’ money woes vanish, they could bring their accounts up to date, and then stay put. If not, they would have one month to clear out once new buyers have cleared escrow. This makes much more sense than for residents to suffer foreclosures, vacate, and then leave banks holding inventories of deserted houses that yield zero income, flood the market, and depress real-estate prices from sea to shining sea.
The worst news is that this $300 billion boondoggle is just the latest example of America’s burgeoning bailout culture. It is becoming routine in the land of the free and the home of the brave to privatize profits and socialize losses. These include the $125 billion savings-and-loan bailout of the late 1980s, the Federal Reserve’s $3.6 billion bailout of Long-Term Capital Management in 1998, this year’s $30 billion bailout of Bear Stearns, plus $106 billion in Keynesian stimulus checks for nearly everyone, and the never-ending budget-busting bailouts of U.S. farmers via Stalinesque, five-year plans. Americans who are wealthy enough to afford beach houses periodically watch them wash away in hurricanes, only to see them repeatedly replaced at taxpayer expense.
The United States is devolving into a social plutocracy. A relatively small number of often affluent Americans cushion themselves from the consequences of their failed risks by sponging off of this nation’s 130 million prudent but exhausted taxpayers.
– NRO contributing editor Deroy Murdock is a columnist with the Scripps Howard News Service and a media fellow with the Hoover Institution.
© 2008 Scripps Howard News Service