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Mortgage mess self-help

By John Shadegg and Herb Morgan
April 21, 2008

The United States Senate recently passed a bipartisan housing bailout plan with a $15 billion price tag. There's little likelihood the program won't grow and costs escalate dramatically as the legislation moves through the House Financial Services Committee under the leadership of Rep. Barney Frank, Massachusetts Democrat.

The bloated Senate package essentially absolves irresponsible borrowers and lenders of wrongdoing and, worse still, forces American taxpayers to shoulder the burden of fixing the housing crisis. Its provisions include a $4 billion block grant for communities to purchase and refurbish foreclosed properties, an expansion of the Federal House Administration's (FHA) loan limit to $550,000, and a $100 million allotment to fund counseling for at-risk homeowners.

Mr. Frank's plan, which he will soon introduce in the House, would allow FHA to provide $300 billion in new guarantees to refinance these mortgages. And, instead of $4 billion, he wants to give $10 billion in grants to communities for buying and redoing foreclosed homes. Others propose even larger government solutions. Many believe the price to taxpayers will hit $100 billion or more.

The foreclosure problem is hurting American families and our nation's economy. According to the Mortgage Banker's Association, 1 in 50 homes with a mortgage is at risk for foreclosure. It is estimated there could be as many as 2 million foreclosures this year. And home prices have fallen steadily and are predicted to continue in a downward trend, dropping 15 percent in 2008 and 10 percent in 2009 according to recent estimates.

Obviously, America faces a serious economic challenge created by the collapse of the subprime mortgage market. But for a free market society, costly, big government solutions are arguably worse than the problem. Instead of pouring money on the problem, Congress should look for ways to make it easier for Americans to help themselves.

Homeownership is a key part of the American Dream. And, for most Americans, their home is their single biggest asset.

As such, equity in their home is a central part of their retirement savings. If they were to lose their home, their credit would be severely impacted and their financial security irrevocably damaged. A taxpayer-funded government bailout is a bad idea. We should provide Americans with a hand-up, rather than a handout and allow them to use one form of their retirement savings, their retirement savings accounts, to save another form of retirement savings, their home equity.

Thanks to legislation enacted in the 1970s providing tax incentives for retirement savings, millions of Americans have retirement savings plans. According to the most recent Survey of Consumer Finances 44.5 percent of households with at least one worker participated in a tax-deferred retirement contribution program.

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