Monday, July 4, 2011

The "Keep Houses Unaffordable" Initiative

In a misguided attempt to prop up the "values" of homes, the Federal Government is giving free money to people who bought houses they couldn't afford by extending low- or zero-interest loans with an option to not repay the loan. There are two separate programs: the HUD Emergency Homeowners' Loan Program and the Treasury's Hardest Hit Fund.

As a responsible family that did not overextend ourselves to by a house that we couldn't afford, this is just a slap in the face. I don't begrudge people who bought homes and have now fallen on hard times...although the possibility of job-loss is supposed to factor into the calculation of how much house you can afford. No, I'm irritated because these programs are feel-good attempts to prop up the still-overpriced housing market so that banks don't have to recognize the true value of their mortgage-backed assets. You see, as a lender, banks should care about the borrowers ability to repay. So long as the government is willing to step in and pay when borrowers can't, it just reinforces bad lending practices.

Meanwhile, keeping home prices high is in no way good for us little people. It doesn't help people to have the burden of a home they can't afford hanging like an albatross around their necks. It doesn't help young families (such as my own) buy their first fact, it actively obstructs that. Unless income rises to the point that homes are no longer ridiculously overpriced, which -- with real wages falling for 40 years -- doesn't seem likely, it does nothing to make homes more affordable. And affordability is the real problem with the housing market.