Last month, Rep. Spencer Bachus (R-AL) — who has now officially been named the chairman of the House Financial Services Committee — explained that, in his view, “Washington and the regulators are there to serve the banks.” And it seems that the rest of the Republicans on the Financial Services Committee are coalescing around their chairman’s philosophy.
Last week, Rep. Scott Garrett (R-NJ), who is chairing the Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises, said that he wants to implement a mortgage finance system that is entirely private, jeopardizing the very existence of the 30-year mortgage on which so many families rely. And in a speech today, Rep. Randy Neugebauer (R-TX), Chairman of the Subcommittee on Oversight and Investigations, said that he wants all foreclosure prevention efforts to be halted immediately:
“All these foreclosure mitigation initiatives we’re taking need to stop,” he said, speaking at an event co-hosted by the University of Maryland’s Robert H. Smith School of Business and the NYU Stern School of Business. Neugebauer said the private market should be allowed to work through the problems in the housing market without “administration pressure” to avoid foreclosures. “Markets aren’t kind, but they’re very efficient,” he said. “There were people who were put in their homes that probably never should have been there before.”
Neugebauer is parroting the conservative vision of the housing crisis — which to them was caused entirely by government policies encouraging homeownership amongst those who couldn’t afford it — so it’s not surprising that he thinks the government should get out of the foreclosure prevention business. But the actual problems in the housing market bear little resemblance to those Neugebauer outlined.
For one thing, leaving aside that many of the borrowers who faced foreclosure early in the housing crisis were hoodwinked by predatory lenders, the foreclosure crisis long ago migrated out of subprime loans and into prime loans, as people lost their jobs in the Great Recession. So a crisis created in large part by the shenanigans of bankers then walloped homeowners, who become unemployed through no fault of their own. Neugebauer’s prognosis also ignores the problem of underwater homeowners, who, again, through no fault of their own, now owe more on their mortgage than their home is currently worth, due to plunging home prices.
Meanwhile, one million homes were foreclosed upon last year, and real estate analysts say that another one million will go into foreclosure this year. This not only harms the individual borrowers, but the wider economy, dragging down home values for everyone else and blowing holes in bank balance sheets.
The administration’s foreclosure prevention efforts have, admittedly, left a lot to be desired, but that’s because they involve lots of carrots for banks to modify mortgages, but few sticks, while banks have institutionalized systems biased in favor of foreclosure (like their use of “robo-signers“). Neugebauer’s approach would simply remove the limited help current foreclosure prevention efforts provide, leaving homeowners to the mercy of the very banks whose negligence helped drive the housing crisis in the first place. For some ideas on how to properly reform foreclosure prevention programs, visit here, here, and here.