RALEIGH – One of the acronymic creations of the Great Recession is HAMP, the Home Affordable Modification Program. Administered by Fannie Mae, that great stalwart of sound housing policy and prudent steward of taxpayer largesse, HAMP was designed to help Americans stay in homes they can’t afford, so as to deny reality and perpetuate the deep problems in the housing market.
Okay, admittedly the good folks at HAMP would describe the program’s intentions with more flowery language and less candor.
Still, no matter how many euphemisms one might wish to employ to describe the goal, there’s little evidence that the program is yet accomplishing it. According to the Triangle Business Journal, only about one out of every five mortgages submitted for review in the Triangle area have been “permanently modified” under HAMP, a result that disappoints its backers – and reassures its critics, me included.
I never thought it was a good idea for government to meddle with private contracts to which it never was, or never should been, a party. Thrashing around with incoherent ideas and fistfuls of other people’s money does not constitute a sound housing policy.
For years, government at all levels intervened in the housing market to maximize the number and size of mortgage loans extended – through direct grants, loan subsidies, regulatory pressure on mortgage lenders, loose monetary policy by the Federal Reserve, implicit taxpayer backing for Fannie Mae and the secondary mortgage market, and the explicit income-tax deduction for mortgage interest. Now that the housing bubble these government policies help to inflate has popped, the Obama administration and other policymakers want to continue pushing energetically on the pump, seemingly oblivious to the futility of the act.
Borrowers, lenders, and investors of mortgage-based securities have some common interests in the current situation. It’s costly to foreclose on a home its “owner” can’t afford, make necessary repairs, and then market the property for resale. But to say that foreclosure and resale can be costly is not to say that the government should bend over backwards, at taxpayer expense, to keep borrowers in homes they have no realistic prospect of being able to afford without huge reductions in rates, loan principal, or both.
To put the matter another way, it makes little sense to try to solve a problem by perpetuating it. The American economy has suffered a severe recession in large part because too many people bought homes before they were ready, too many people bought homes larger than they could afford, too much of the nation’s financial capital went into home construction rather than other investments, and too many loans were sliced, diced, repackaged, and sold to investors without a sufficient attention to the downside risks, many of which were assumed to be guaranteed by the federal government.
The proper policy response is not to preserve or expand the very government policies that created the problem in the first place. Government fiscal, monetary, and regulatory policies should be entirely neutral with regard to household decisions to buy or rent, as well as to negotiations among borrowers, lenders, and investors about the resolution of delinquent mortgages.
Keep in mind that for every underwater borrower who gets government help to stay in a home at risk of foreclosure, there is a current or future buyer who will no longer be permitted the opportunity to purchase the home at the market price. Many of these potential buyers would be first-time homeowners, albeit ones actually prepared financially to shoulder the responsibility.
There is no good reason for government to favor current borrowers over future ones. There is very good reason for government to get out of the housing business as soon as possible. It’s done more than enough damage already.
Hood is president of the John Locke Foundation