Housing Bailout Scheme Leaves Taxpayers Holding The Bill

Press Release

The multi-billion dollar bailout scheme of housing and financial markets passed by Congress and signed into law by President Bush leaves taxpayers holding the bill for risky decisions made by borrowers and lenders. Shifting financial risk from investors to taxpayers is the wrong solution and bad policy.

The real long-term challenge America faces in the housing market is ensuring that those who can make payments on affordable homes have access to credit that allows them to purchase. Mortgage amnesty is only destined to cause bigger problems.

In the past five years, "too-good-to-be-true" methods of homebuying included no money down, no requirements for buyers to document their ability to pay, interest only loans, and the like. Teaser rates lured buyers to homes they could not afford. The heightened demand drove prices to peaks never seen before.

The housing bubble has obviously burst. Nationwide, the housing foreclosure filing rate hovers around 1 percent and we continue to see much greater impacts in areas like Southern California where my district is located.

While it is unfortunate for speculators, investors, and borrowers to lose money, taxpayers should not be forced to pay for those losses through government refinancing. Shifting responsibility for buyer losses to taxpayers encourages further unwise investment in the future and suggests that there is no individual exposure to risk in the housing marketplace. Whatever happened to personal responsibility?

Would we consider a bailout for someone who purchased General Motors or Microsoft stock and lost money? Why should you, the taxpayer, have to foot the bill for someone else's bad financial decision? This is a tough issue, but at the end of the day we must be fair -- even regarding something as nostalgic for Americans as home ownership.

Many subprime borrowers put little or no money down, have little equity in their home, or took out a mortgage on a home well above what their income can support. They now find themselves unable to make their monthly payments and are voluntarily leaving their mortgage rather than strain to stay in a home that was not the right fit financially.

Those who do desire to stay in their homes are seeking assistance through programs like the HOPE NOW Alliance. Over one million homeowners have already voluntarily avoided foreclosure without government assistance. This collaboration is proof that creditors and mortgage services can work with borrowers to create mutually beneficial agreements for at-risk homeowners. Further success for those who need and ask for help can be reached without a government mandate.

Government action to keep people in homes they cannot afford will perpetuate artificially inflated prices and put the nation back in a similar conundrum in the near future.

Housing markets are cyclical in nature. Past rises and falls have been weathered without Washington reaching into taxpayer wallets.

Rather than pandering for votes with a multi-billion dollar bailout, Congress should work to ensure credit is available for homeowners to purchase and invest in homes at interest rates that remain historically low. The increased availability of Federal Housing Administration (FHA) insured loans opens up new opportunities for buyers in higher priced markets like Southern California.

Congress and the Federal Reserve should also be examining regulatory decisions that may have fueled the housing bubble and supporting efforts by the Department of Justice to hold any bad actors in the housing and financial industries accountable.

While this is a difficult time, there is a small silver lining. As homes prices drop homeownership becomes more affordable. We need to ensure that Americans who make their payments continue to have access to understandable and legitimate loans. Forcing taxpayers to fund a bailout is the wrong solution.

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