Some Simple Rules to Avoid Another Housing Mess

Maggie Pitts /

Mortgage Madness

The New York Times is shocked – SHOCKED – to learn the Senate’s legislative remedy for the mortgage mess offers surprisingly little relief for folks with problem mortgages, but gives huge tax breaks to “automakers, airlines, alternative energy producers” and others.

Doubtless the Gray Lady will be shocked at how the House proposes to restore balance: By drafting legislation that uses the taxes of responsible, middle-class homeowners and renters to bail out most everyone who’s in over their heads in mortgage payments.

And “everyone” means everyone. Even those who lied about their incomes to get loans they knew they couldn’t afford. Even speculators who knowingly gambled that they could turn a tidy profit by floating a mortgage and then quickly flipping properties. Even fat cats looking for help to pay off their vacation homes.

Bailing out people who’ve indulged in this kind of fraudulent or irresponsible behavior is no way to restore stability and sanity to the housing market. If lawmakers must meddle in the market, they should at least try to limit subsidies to those who (1) truly need help and (2) didn’t bring their current difficulties on themselves.

Here are three rules that would help:

  1. No bailouts for borrowers who obtained mortgages through misrepresentation.
  2. No bailouts for those who drained home equity by taking out unnecessary second mortgages.
  3. No bailouts for vacation homes, investment properties or anything other than a borrower’s principal residence.

You can find more such commonsense rules suggested here. For more Heritage Foundation insights into the housing crisis and what Congress should and shouldn’t do about it, click here.