Clinton’s risky bailout

OPINION:

Demanding a moratorium on foreclosures, a highly questionable “self-financing” government bailout of imprudent borrowers and a five-year freeze on the initial “teaser” rates for adjustable-rate subprime mortgage, Hillary Clinton evidently believes there never was a housing bubble. In her mind, it appears that any deviation from this unsustainable trend is either un-American or an assault on the middle class. “Home prices dropped almost 9 percent last quarter” from year-earlier levels, she recently noted, emphasizing this was a decline in “home prices for everyone. If you’ve paid off your mortgage,” she disingenuously observed, then “you have suffered the steepest decline on record.” Of course, if you have “paid off your mortgage” (or even if you bought your home before 2000), then you benefited from the (national average) bubble-era price increases of 9.8 percent (2000), 7.7 percent (2001, a recession year), 10.6 percent (2002), 10.7 percent (2003), 14.6 percent (2004) and 14.7 percent (2005). Apart from foreclosures related to job losses, a significant majority of people facing foreclosure today are those who made risky bets in recent years.

It obviously has not occurred to Mrs. Clinton that millions of households became “homeowners” in recent years without putting a dime of equity into their homes and despite the fact that they were woefully unqualified (by virtue of their relatively inadequate incomes) to meet the financial obligations of the mortgages they obtained. This applies just as much to upper-middle-class families that purchased much larger homes (so-called McMansions) than they could afford as it applies to low-income families that were not yet ready for the American dream. Millions of “homeowners” Mrs. Clinton wants to bail out put “no skin in the game” in 2005, 2006 and 2007 when they bought their houses; and they have “no skin in the game” today. Without any “skin in the game,” it is easy for a 9 percent price decline to push “homeowners” “underwater,” when their mortgage balances exceed the value of their homes.

As the housing market approached its feverish peak in recent years, Mrs. Clinton seems to believe that all families that managed to qualify for a mortgage during that time deserve to keep their homes. Like irresponsible homeowners, Mrs. Clinton seems to have no regard for the facts: Mrs. Clinton’s bailout plan will prevent housing prices from reaching their equilibrium level, which would bring them in line with reasonable credit standards and prevailing income levels.