- The Washington Times - Friday, May 29, 2009


Housing prices are in free fall. No bottom is in sight as President Obama’s policies continue to undermine the market.

The S&P/Case-Shiller U.S. National Home Price Index posted a 19.1 percent drop for the first quarter of 2009 compared to last year. The rate of decline is getting worse. The first quarter of this year showed the biggest quarterly decline in the index’s 21-year history. Government meddling will drive down prices even further.

Last week, President Obama signed into law the Helping Families Save their Homes Act of 2009. Now mortgage collectors can break existing contracts with companies that lent money for mortgages. This new law grants “mortgage servicers,” often banks, legal immunity from lawsuits for breaching these existing contracts. This comes on top of regulations in March that tell lenders they must pay mortgage servicers a fixed amount for renegotiating the amount each borrower has to repay. These renegotiations involve forgiving borrowers for some of the debt that they owe. Mortgage servicers will get paid simply on the basis of doing another renegotiation, whether or not it is done in the interests of the lenders.

These regulations create a clear incentive to reduce mortgage payments for homeowners. This is beneficial to borrowers who qualify but terrible for lenders and those who will try to borrow money in the future.

This kind of regulation undermines the Obama administration’s stated priority of fixing the housing market. If lenders can’t stop the people they hire to manage mortgages from giving away their money, they won’t lend anything. If they won’t lend money, housing prices will continue to fall because new buyers won’t be able to afford to buy homes. Fewer buyers means lower prices because supply is greater than demand.

This isn’t Mr. Obama’s first assault on housing prices. Last year, as a presidential candidate, he proposed letting federal judges rewrite mortgage contracts. The judges would have been empowered to lower the principal owed as well as interest payments. Fortunately, this idea has yet to materialize, but the mortgage market undoubtedly was chilled by the prospect, which contributed to the drop in home prices.

The Obama administration’s housing policies redistribute wealth from lenders to some borrowers by trying to reduce forcibly the amount borrowers owe. Lenders are being forced to pay for the president’s altruism. That’s no way to stabilize home prices.

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