Why State-assistance for subprime mortgages makes good economic sense...

modernesquire — Tue, 27 Mar 2007 16:38:29 -0700

Matty at RAB keeps up his 1.000 perfect hitting average of opposing anything proposed by the Strickland Administration, no matter how reasonable and pragmatic it may be. This time, it's the new initiative to give some Ohio families the opportunity to refinance their homes with assistance from the state to avoid foreclosure caused by escalating monthy payments caused by rising monthly interest rates in subprime mortgages.

Matty, with his conservative Strickland hating myopia cries:

The state should not start issuing loans to anyone, and it is very difficult for me to blame anyone except the home owner for taking out subprime loans that they couldn't afford. How far can government go to protect people from their own incompetence?
The way to fix the "foreclosure crisis" is to cut taxes and to pass policies which extend economic freedom- Only then, will Ohio's economy turn around and produce the type of higher paying jobs people need to pay for houses.

Where to even begin? Well, first, according to the very Dayton Daily News story linked by Matty, the program requires beneficiaries of the program to undergo credit counseling. Second, I find it ironic that a person who reguarly advocates legislative actions to limit the monetary liability of manufacturers who have placed defective or dangerous products into the stream of commerce suddenly is an advocate for responsibility.

Third, tax cuts won't solve the problem. Matty ignores the obvious that after massive federal and state tax cuts have been enacted, the state is still facing a foreclosure crisis. (Under Republican rule, Ohio cut its personal income tax some 21%, and yet continues to lead the nation in foreclosures.) Second, most of the people vulnerable to foreclosure pay little, if any, income taxes at all. There's not enough tax liability to cut in order to make decreases in tax liability offset increasing housing costs caused by rising subprime mortgage interest rates. Fourth, tax cuts won't provide real relief for another year, unless both the state and federal government offer "rebate" checks. And, of course, the obvious question is: if Mattie thinks government shouldn't provide loans to "protect people from their own incompetence" why should we then reward them with tax cuts? And how is this not a program that, in fact, is a policy which extends "economic freedom" when it gives familes the opportunity to own their own home and avoid bankruptcy?

And the most obvious flaw is that subprime mortage borrowers are not solely to blame for the foreclosure crisis. In fact, inequities in the market are directly to blame, as is the Republican General Assembly slow and ineffective response to predatory lending. With builders, mortgage lenders, mortgage brokers, and mortgage-backed securities investors all focusing on chasing the quick commission/return investment dollar, the industry as a whole has a short-sighted financial incentive to get consumers in financially irresponsible loans because the market permitted many of the front-end economic actors to focus on getting the commission now and passing the risk later down the chain to the willing mortgage-backed investor who was demanded more and more in what was being treated as a never-ended housing market utopia.

Buckeye State Blog - Why State-assistance for subprime mortgages makes good economic sense... - Comments

Why State-assistance for subprime mortgages makes good economic sense...