The Proposals will fail to help those homeowners who are truly in need, including those whoare delinquent or near foreclosure. Rather, they make providing necessary assistance moredifficult due to the credit tightening that will exclude homeowners in affected areas fromrefinancing options and other opportunities. Effects include higher down paymentsgenerally, and the reduction or elimination of parts of government supported programs suchas the Federal Housing Administration’s low-down payment programs because of theincreased risk passed on to the taxpayer.Households nationwide would be impacted along another dimension because manymortgage securities are used by asset managers in local and federal pension plans, 401kplans, and endowments, as well as by individual investors, all of whom would see theiraccounts decline in value. Disrupting these investment instruments will harm the retirementsavings of many middle class families, impacting the economy as a whole. For example,Moody’s Investors Service suggests that adoption of eminent domain across the nationcould cause mortgage-backed securities to suffer immediate losses as high as 30 percent.Considering that Fannie Mae and Freddie Mac alone own $113 billion worth of private-labelresidential mortgage-backed securities and insure many times this amount, the economy-wide impact could be significant.
The housing recovery is a national concern for which there are no “silver bullet” cures.However, programs currently exist that can help homeowners of the type targeted by theProposals. These programs are currently underutilized and do not pose the same risks aseminent domain. Moreover, these programs target homeowners who are truly at risk oflosing their homes.For example, the Home Affordable Refinance Program (HARP) is a program sponsored bythe U.S. Departments of the Treasury and Housing and Urban Development which allowsunderwater homeowners who are current in their payments to refinance their GSE-ownedmortgage for minimal costs. The Home Affordable Modification Program (HAMP) allowsborrowers who are struggling with their payments to stay in their home while lowering theirmonthly payments. These are but two of the multitude of efforts to help homeownersharmed by the financial crisis, and state and local governments should encourage morewidespread use of these proven tools.
While the housing market is not recovering as quickly as possible, policymakers mustovercome the urge to implement policies that have costly unintended consequences thatcould harm taxpayers, consumers, and overall economic growth. Eliminating uncertainty,reducing foreclosure backlogs, creating a stable environment for private capital, andensuring access to credit for qualified homeowners are the principles that will lead us intofinancial stability and economic growth.