(Victor Joecks/NPRI) – Because government interference in the housing market has worked out so well so far. Let’s see, between the Community Reinvestment Act, the Federal Reserve’s manipulations of interest rates, the $8,000 tax credit for new home buyers and Nevada’s own unconstitutional Foreclosure Mediation Program, I’d say the government has done a great job solving Nevada’s housing problems.
Wait … what? Nevada’s mortgage delinquency rate is more than double the national average, at over 12 percent?
I thought all these government programs were supposed to fix this foreclosure crisis.
Not to fear. Gov. Brian Sandoval is about to announce even more government interference in the housing market. Because if one government program doesn’t work, the answer couldn’t be less government — it must be another government program!
It hasn’t been officially announced, but in reading the tea leaves (aka Sandoval’s recent interviews with Jon Ralston and Channel 8), I’m going to predict that Sandoval’s grand new plan to “help” those in foreclosures involves subsidizing homeowners and banks with taxpayer dollars.
Specifically, I expect an announcement that some banks have agreed to make principal reductions on the mortgages of those facing foreclosure or, at least, an expansion of access to federal subsidies available to “homeowners” facing foreclosure.
Outside of a court order, why would a bank agree to reduce the principal of a loan? Because Sandoval will use some of the $190 million available from the feds in Nevada’s “Hardest Hit Fund” to replace some or all of the reduced principal.
Combined with a public information campaign, expanding eligibility and a shiny new website to “streamline” the process of getting federal subsidies, this may score Sandoval political points. It won’t, however, fix Nevada’s foreclosure problems. Indeed, it will only make things worse.
First, it’s unjust to use taxpayer dollars to subsidize the entities — the individual who can’t pay his mortgage and the bank that made or bought the loan — that are causing the problem. Now, this money is coming from the feds, so at least Sandoval isn’t spending state money. But this interference is still going to make things worse.
By financially rewarding those who are in or near foreclosure, you incentivize other homeowners to flirt with foreclosure and punish those who pay their bills on time. In turn, this depresses home prices, which hurts every homeowner who is doing his best to make on-time payments.
Finally, this prolongs the housing problem, because the market isn’t allowed to bottom out and rebound. Instead, these government programs keep the market bouncing along the bottom. This also hurts those who are looking to become new or first-time homeowners.
Imagine if government had stayed out of the way and the housing market had been able to bottom out in 2008 and 2009. We’d likely have been looking at a real recovery this year, but instead, government is still trying to fix the problem it created and elongated.
Two notes: First, since Sandoval hasn’t formally announced his plan, I could be wrong about it, and I hope I am. But, given Sandoval’s interviews and his plans to meddle in other areas of the Nevada economy, I doubt it.
Second, on a personal level, I sympathize with someone who can’t make his house payment and how stressful/horrible that is for him and his family. And no doubt the governor feels badly for such a person as well. But personal feelings of sympathy are not a justification to use government money to bail out individuals and banks, especially when those actions reward the behavior causing the problem and hurt every other homeowner who’s doing his best to pay his mortgage on time.