Sunday, May 11, 2008

Opinion: Is this good public policy? Does the U.S. Government too often "govern by crisis?"

39 Republicans Join Democrats As Mortgage Bill Passes House

By Lori MontgomeryWashington Post Staff Writer Friday, May 9, 2008; Page A01
The House yesterday approved an ambitious plan to rescue hundreds of thousands of homeowners at risk of foreclosure by helping them trade exotic loans with rapidly rising monthly payments for more affordable mortgages backed by the federal government.

Bucking a White House veto threat, 39 Republicans joined Democrats in supporting the bill, the centerpiece of a broader housing package that represents Washington's most aggressive response to the nation's housing crisis. The measure aims to unfreeze mortgage markets by expanding the Federal Housing Administration's reach and strengthening mortgage giants Fannie Mae and Freddie Mac. It also would create a $7,500 tax credit for first-time home buyers to try to boost sales and slow plummeting home prices.

GOP House leaders blasted the bill as a bailout for speculators and irresponsible borrowers. But the measure, sponsored by House Financial Services Committee Chairman Barney Frank (D-Mass.), gained strong support from rank-and-file Republicans worried that escalating foreclosures are ruining lives and decimating neighborhoods.

Despite President Bush's condemnation of the bill this week, White House officials seemed to leave the door open to negotiation. And key Republicans are working with Democrats on a similar plan in the Senate.

"People are in a world of hurt. My sense is there's maneuvering room," said Rep. Fred Upton (R-Mich.), whose state has been among those hardest hit. "There's still a good chance they'll get a bill the president can sign, knowing that a lot of the country needs help."

More than 1.2 million homes are in foreclosure, and an additional 3 million are forecast to join them over the next two years. Home prices have fallen more than 10 percent, and state and local tax collections are suffering. Polls show the economy is the top concern among voters, with one in four respondents saying they have been directly affected by problems in the housing market.

The borrowers most at risk of foreclosure -- and who have drawn policymakers' attention -- are those who have fallen behind on their mortgage payments but cannot sell or refinance because the value of their homes has fallen so far that they owe more than their homes are worth.

The Bush administration has tried to help such borrowers by urging banks to reduce their mortgage debt. The administration also has eased eligibility standards so borrowers who have missed a few payments can qualify for cheaper loans insured by the federal government through the FHA. But those initiatives have helped relatively few families.

Frank's proposal calls for the FHA to respond more aggressively, by offering to insure mortgages for even the least creditworthy borrowers if their banks will forgive a portion of the debt and help them stay in their homes. Under the proposal, lenders would have to take a significant loss, permitting borrowers to pay their original loans with new loans worth no more than 90 percent of their homes' new, lower value. Extra fees charged by the FHA would lower the payoff to lenders to 85 percent of a home's current value.

Borrowers would get lower monthly payments and an immediate equity stake in their property. If home values rise, the plan requires homeowners to share their profits with the federal government when they sell or refinance.

The Congressional Budget Office estimates that as many as 500,000 homeowners will benefit from the program. But more than a third of those borrowers are likely to default, the CBO estimates, forcing the FHA to pay off their loans and take possession of their property at a cost to taxpayers of $1.7 billion.

The White House has balked at that price tag, calling Frank's bill an "attempt to shift costs to taxpayers [that] constitutes a bailout." But there are signs that the administration is open to compromise.

In a speech Monday, Federal Reserve Chairman Ben S. Bernanke appeared to endorse Frank's plan. Treasury Secretary Henry M. Paulson Jr. and other administration officials have spoken favorably of it. On Wednesday, even as Bush declared his intention to veto the measure, one of his top economic advisers told the Wall Street Journal that differences between the White House and congressional Democrats were not "insurmountable."

Yesterday, White House spokesman Tony Fratto said Bush supports the concept of Frank's plan. "As a basic concept, it's what we're already doing. But it's what we're doing on steroids," he said.

"Is it possible to have additional housing legislation? Yes, it's possible. And maybe the Frank bill could change so much that there could be legislation we could accept," Fratto said. "But I think we're far away from that."

In House debate, many Republicans echoed the administration's concerns. Minority Leader John A. Boehner (Ohio) said Frank's bill would "bail out scam artists and those who were speculating in the market, and they want taxpayers to pick up the tab."

But other Republicans cringed at the indictment of troubled borrowers and said they were disappointed by the veto threat.

"What's offensive is some of the rhetoric," said Rep. Steven C. LaTourette (R-Ohio), who voted for the measure. "They say it rewards speculators. No, it doesn't. It's limited to homeowners. They say it's a $300 billion bailout. No, it's not. It costs $1.7 billion."

"Would I have written the bill the way Chairman Frank did? No, but we're not in charge anymore," LaTourette said. The housing mess "calls for some bold action. People are expecting us to do something."

The House voted 266 to 154 to approve Frank's rescue plan and a broad array of other housing initiatives. The House also voted 322 to 94 to approve an $11 billion package of housing tax measures, including the $7,500 credit for first-time buyers who purchase a home this year. Under the measure, the credit would have to be repaid to the government over 15 years.

The package moves to the Senate, where Banking Committee Chairman Christopher J. Dodd (D-Conn.) and the committee's senior Republican, Richard C. Shelby of Alabama, are working on a similar proposal. Senate Republicans have been more resistant than their House counterparts to broad plans to intervene on behalf of distressed homeowners.

But Francis Creighton, vice president for government affairs at the Mortgage Bankers Association who is working with both the administration and Congress to slow the rate of foreclosures, said he expects a compromise to be reached.

"We believe the administration is as committed to addressing this situation in the market as anybody. There's still a lot of time for negotiation," Creighton said. "Everyone wants to support something that can fix the housing crisis."



Vlad said...

Once I enter the real world, I'll be happy knowing my tax money will be going to those on welfare, old people, gov. programs, etc. But I would not be happy if my money went into helping people who got themselves in this mess. Right now, why should people's tax money go to bail out people who bought homes they could not afford? These people made their own decisions, and I think if they were willing to buy such expensive homes, then they probably have the resources to bail themselves out. The gov. should only help those who fell into a scam of some sort. This is bad public policy and Americans' money could be going into better things for needier people. For once, I'm probably siding with Alex and Corey.

tomj said...

I agree with vlad. I'd rather not go and have the money I earned go help people who have put themselves in a bad position. They only only be helped if there is absolutely no possible way that they could help themselves. As an example if someone goes way in debt and they no family to help them and they have next to no credit to get a loan. That's about the only way I see that the government should help out these people.

MorganJ said...

WOW. I have a couple comments about this week's blog.

First, to answer the original question, my first reaction was "yes, the government too often governs by crisis," but then the more I thought about it the more I changed my mind. Our government is based on protecting people. Therefore, if there is a crisis that is hindering our citizens,our government needs to step in--it's its job.

Second, I have to disagree with the two previous comments. I feel that our government NEEDS to intervene with the housing market. IT IS HORRIBLE!!!! I know my family is hurting right now because of it (my mom is a realtor and owns multiple properties). If my mom didn't have her other business, she has said she wouldn't know what she would do right now.

People do not get themselves into these situations. It just kind of happens. The market has been a disaster and something needs to be done! Pretty much every other industry is based off of housing--constructions, heating, landscape, appliance sales, etc. This housing crisis is affecting everyone (i.e. your parents). I'm very passionate about this topic because my family has taken a very significant impact as a result.

cmorgan said...

I agree with Vlad too. The government should be helping the people that can't help themselves for legitimet reasoning. My own parents are in the process of building a $550,000 house yet they both work at the post office. If they are able to afford that sort of house without government support, anybody should. Its about being smart with your money. If the government "governs by crisis" too often, the people will depend to heavly on it. I agree with Morgan's philosophy that the government is made to help us, but if we can help ourselves then government money is better off helping those who need it.

aly mac said...

I do not think that this is smart public policy. The government in this case is governing solely by crisis. It is not the government's responsibility to have to bail out those who made poor housing decisions. Why should tax payers as well have to take on the added burden of paying for other's mistakes? I believe that our money could definitely be put to a better use. In addition, I feel that if we continue to put too much false money into this, we could end up with more problems. Our country needs to focus on other issues and allow this to play itself out.

Alex D said...

With the exception of the first sentence Vlad had an almost perfect post!!!!!!!

The government should not be a sort of get out of jail free card for someone who cannot afford their house payments, or let themselves get to far into debt, or who cannot get a job.

It is not my job to spend my tax dollars to support this person, in fact rather than spending my money to support this person i would like a refund and would like that money back to support myself, thank you.

Erica C said...

As the economy changes, it's necessary to change the way government works with citizens and their money. A shift has to occur because policy can't work equally well when it comes to two very different states of the economy. However, what could have been a good concept has become very extreme. This policy may be an overreaction to the state of the economy that could create more problems in the future.

JamieW said...

Too bad our government doesn't have exceptions. If you're poor you can get welfare. They don't care if you're a drug dealer or if you're a single parent trying to support your kids... you can have welfare. Maybe if we could somehow figure out a way to help only the people who DESERVE help it'd be better. That'll never happen.

jamieg said...

I guess the way I feel is that this is just another example of the fact that our economy is really poor right now. And I'll admit I definitely don't know hardly anything about the economy, but I have a feeling that this is just not an effective way of dealing with a poor economy. Giving people extra money with their tax returns and helping people who are losing their homes seem like dealing with the consequences of the economy and not actually helping solve the real problems.
To be honest, this is totally a superficial idea because I don't really honestly understand the intricate workings of the economy. But I get the feeling working to fix the economy and deal with the rising prices would do a lot more than simply giving money to the growing number of people that are being hurt by the economy.

joannaz said...

I can see where the government is coming from, there is a housing crisis, many people are in an absolute mess, and it doesn't look good on our nation. With that said, I don't think this is good public policy and it seems like the government is, in fact, 'governing by crisis' and not in a good way. Something needs to be done about our failing economy but as Jamie said, we need to get to the root of the problem instead of just trying to clean up our mess along the way.

Jake_H said...

I would not say that this is the best public policy, but at lest it is something that might help the economy. Im not sure if i would say that the economy is at crisis level, after all we are not in a depression yet. I think that the government is just trying to take control of the economy before it does become a crisis.

amandak said...

Well I agree with Vlad. We live in a society that wants instant gratification. For example, people are getting credit cards and think that because of this they can spend as much as they want to. That's why the average American household with at least one credit card has nearly $9,200 in credit card debt ( If you can't afford it, don't try to. As Vlad said, these people got themselves into this mess.

Also, I think now that the AP exam is over we should be done posting. That would be the fair thing to do.

ericag said...

I agree with umm lets see jake, morgan, and vlad. on all different points. I agree with vlad on the point that ppl who make stupid decisions should not punish the rest of the people who do not. But i also agree with jake and morgan to the point that the country is obviously in a problem state and we need to fix it. the housing industry is almost the most important industry. I think this country needs a plan to help regulate it. this is the country trying to govern before crisis.

arletap said...

It's not solely a matter of people buying homes they can't afford. The prices in daily life are increasing and interest rates are hitting the fan -- salaries, on the other hand, remain stagnant. Stretching the same budget on inflated prices is easier said than done.

Still, do I believe the government should be bailing people out debt? Not really. I mean, in essence, the government is giving out loans to people who previously would not have qualified -- while banks are being attacked for giving out loans to these very same people. Yet the loans will be paid for by taxes which are paid by the citizens who are the ones with no money with which to buy homes so they'll get loans from the government paid for by taxes which are paid by the citizens...


Welcome to the beginning of the end.

arletap said...

Oh, and cmorgan, (I'm really sorry, I actually have no idea who you are and feel ridiculous referring to you as 'cmorgan,' but anyways...)

Your parents work at the post office...yet they don't recieve financial support? The feds are the ones who sign your parents' paychecks. That probably makes them more well-off than most.

And Amanda, I agree that credit cards are the devil. However, one can't do anything in today's society without one if he or she wants a loan or to own pretty much ANYTHING. It's just how it works.

mente said...
This comment has been removed by the author.
mente said...

I'm going to be completely honest. I'm tired and I forgot we had to blog and I really don't have the ambition or mental capacity to critically think about anything right now, so I'm just going to answer the question. Yes, as a general rule the government does 'govern by crisis' often. No one has figured out a better way to do things yet, so they must.

Christina S said...

I feel like this wouldn't be a solution to the problem.What is the solution? I have no idea. I agree with vlad, that people should buy houses they are able to afford, and our government doesn't make exceptions for the few that really couldn't do anything to avoid getting into a bad financial situation.

PS: I'm extremely proud of myself that I remembered to blog.

Johnny B said...

I don't necessarily agree with this. I feel that this issue should be addressed but in a different way. I don't really have my on opinion on how that is, but I still think something should be done.

This kind of goes along with what Vlad said, but this is what I think. I am okay with giving money to the government when it helps people, but only when it helps people in situations that are deserving. It's way too complicated to pick every situation out equally, but overall this one seems to be unnecessary. People in this situation seem to have done it themselves.

Now if I had to pay more taxes to help pay for a city completely destroyed by a tornado, I would be fine with that.

JamieW said...

An e-mail from Barack Obama:

I have some very exciting news.

My good friend John Edwards is endorsing our campaign and joining our movement for change.

We're here in Grand Rapids, Michigan -- and if you receive this message in time, you can probably turn on your TV and be part of the moment.

I'm deeply honored by John's support. He is a true leader who dedicated his career to improving the lives of ordinary Americans.

John ran a strong, principled campaign for president, focusing on a number of important issues where we share common ground -- universal health care, bringing our troops home from Iraq, and eliminating poverty in America.

The way he ran his campaign was also important. He ran in a way that reflected our shared conviction that we need to fundamentally change politics.

Like our campaign, John's campaign never accepted donations from Washington lobbyists or special interest PACs.

Let's welcome John Edwards to the campaign with an outpouring of the kind of grassroots support that is bringing our political process back to the people.

Make a donation of whatever you can afford now, and if you choose, include your own note to Senator Edwards. I'll make sure he gets them:

Thank you for all that you're doing,


Alex D said...


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Ps. Maybe moveon should do an add more like this

Angelina said...

Man, Vlad's answer is excaltly what I was thinking. Haha. I think it's ridic how people are leaving beyoud their means. They should not recieve help from the government, they knew that they were spending more than they make.