Let’s Leave The Real Estate Market Aloneby Doug Mataconis
For the first time since it has become an issue, President Bush has decided that it’s necessary to inject himself into the market correction currently taking place in the real estate market:
President Bush today unveiled a series of measures intended to help ease a wave of mortgage defaults, but he ruled out any federal bailout for lenders or for homeowners who bought properties they could not afford.
In a brief speech in the White House Rose Garden, Bush urged lenders to “work with homeowners to adjust their mortgages” if homeowners run into difficulties making payments. He also outlined steps to modernize the Federal Housing Administration, allow homeowners to refinance into FHA-insured mortgages with lower rates, temporarily reform a key housing provision of the federal tax code and launch a new “foreclosure avoidance initiative.”
Bush said U.S. markets “are in a period of transition as participants reassess and re-price risks,” a process he said will “take more time to fully play out.” But he stressed that the U.S. economy remains “strong enough to weather any turbulence.”
Referring to strains in the mortgage market, notably the “subprime” sector that includes riskier loans, Bush said the market has undergone “tremendous innovation” in recent years, with credit made available to more people. He described this development as mostly positive, helping to push American homeownership to new heights.
“Unfortunately, there has also been some excesses in the lending industry,” Bush said, citing a “troubling” increase in adjustable-rate mortgages, which start out with low interest rates and then rise sharply to higher rates.
What the President, and everyone else who has seen fit to make a comment on the real estate/mortgage situation recently fails to mention, of course, is the fact that there are two sides to every mortgage loan. There’s the lender, who takes the risk of lending hundreds of thousands of dollars. And there’s the seller, who, at least in the days of the high-flying real estate market, was not exactly the example of the rational consumer.
Case in point. There was a story in a local newspaper here in the Washington, D.C. area (a link to which seems to be unavailable at the moment) about a local couple who purchased a $ 600,000 home two years ago. The wife operated a maid service, and the husband was a construction contractor.
Yes, they may have qualified for a mortgage in 2005, but can anyone seriously tell me that they thought about whether they might have a problem if 2007 turned out to be a more difficult year than 2005 ? Frankly, I think the answer is no.
And yet George W. Bush, who claims to be a Republican, wants to intervene in the market to save people like this from bad financial decisions.