Mortgage sub-prime crisis examined in new reportMortgagePress.comCompetitive Enterprise Institute, bankruptcy, foreclosure, Mortgage Reform and Anti-Predatory Lending Act of 2007
Congress could exacerbate problem
As Congress scrambles to fix the sub-prime crisis that's plunged
mortgage lenders into bankruptcy and homeowners into trouble, a new
report by the Competitive Enterprise Institute (CEI) states that
Americans would be better off if Congress did not try applying a
The various proposals in Congress are "unlikely to provide
relief to homeowners in trouble and may even make things worse,"
explained CEI analysts Eli Lehrer and John Berlau in "A
Non-Prescription for Confronting the Sub-Prime Crisis."
"To date, the crisis has been relatively minor--a small decline
in homeownership combined with a small uptick in foreclosures, with
well-off investors absorbing the bulk of the damage," said Lehrer
and Berlau. "Doing too much could turn a minor crisis into a major
one affecting ordinary Americans."
The report came in advance of a likely vote in the House of
Representatives on the Mortgage Reform and Anti-Predatory Lending
Act of 2007 (HR 3915), which would mandate that lenders only offer
loans that the government determines have the "best terms" and "net
tangible benefits" for borrowers. Lehrer and Berlau blasted the
paternalism of the bill's approach and pointed out it could worsen
the housing crisis by making it harder to get home loans. "This and
similar proposals would go beyond improved disclosure to
essentially outlawing certain types of loans ... limiting the
choices of both lenders and borrowers," the authors explained. "A
mandated 'cheaper' loan that requires larger cash payments at one
time may hinder borrowers' abilities to achieve other financial
goals, such as sending a child to college."
Arguing against both overregulation and bailouts from agencies,
such as the Federal Housing Administration, the authors concluded
that these interventions would worsen the market's ability to
correct the problem by re-pricing risk. "The failure of hedge funds
and mortgage firms sends a clear signal indicating bad business
practices," the authors explained. But, many of the proposed
solutions would likely both "increase default rates and "make it
impossible for some people to afford homes."
For more information, visit www.cei.org.