Out of Control Policy Blog

The folly of the mortgage "crisis"

It is ironic that with the market doing a crackerjack job of punishing the excesses of the mortgage markets, cries for bailouts, handouts, and major new regulations. A recent USA Today article did a great job pointing out many of the ironies that abound.

* In Vermont lender tend to be more cautious and mortgage delinquency rates are below 3%, in contrast to Nevada, where 30% of Las Vegas homebuyers used subprime loans, and now the state has a mortgage delinquency rate above 7%.
* Home prices have only fallen in 77 of 150 cities tracked by the National Association of Realtors, but prices were up in 73 markets.
* California and Florida alone accounted for 30% of recent U.S. foreclosure starts, according to the Mortgage Bankers Association.

Think about what those stats mean. First, Nevada's 7% delinquency rate is the poster child for the problem, but that means 93% of mortgages are OK. A 7% problem is not the crisis that is portrayed. Moreover, even a small percentage of sub-prime borrowers are in trouble. This is a fairly small scale, geographically concentrated phenomenon, not a sweeping nationwide problem. Does it makes sense for the people in Vermont, who avoided trouble, to bail out all the housing gamblers in Las Vegas?

Yet, there seems little chance of calm at the national policy level. Election year politics will pander–hell they don't really need an election as an excuse. My favorite quote from the USA Today article–a woman who bought a house a few years ago with no money down and an adjustable-rate mortgage that started at 5.9% and now faces an 11% interest rate she can't afford says "I think (a bailout) is a good thing for working Americans who are trying to pay their bills and do the right thing. I'm not asking for a handout." Excuse me? I think you just did as for a handout.

I know some people are in pain, but it hurts us all if we don't allow people to bear the consequences of the choices they make. You buy a too expensive home with a high-risk mortgage in order to squeeze down the payments, and things go wrong, it really is your fault, not America's.

Adrian Moore is Vice President, Policy


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