Monday, October 24, 2011

Why We Shouldn't Trust Sacramento to Sort Out the Housing Crisis

Earlier this month, California Attorney General Kamala Harris made waves by pulling out of talks for a 50-state settlement with the nation's largest mortgage lenders. In the minds of Harris and her supporters, the dollar figures being discussed weren't nearly large enough to compensate struggling Golden State homeowners for the damage inflicted on them by unscrupulous banks. Yet according to this story in the Sacramento Bee, you might want to think twice about trusting the government to be any more honest when it gets into the home-financing business.

The report concerns the practices of California's Housing Finance Agency, a government body that offers low-interest loans to first-time buyers. According to the state Senate Office of Oversight and Outcomes, HFA has been doing a lot of foreclosing on its borrowers these days. Trouble is, many of the people it's kicking out of their homes aren't actually delinquent on their loans; rather, these people are renting the houses out while they continue making payments on them. In many cases, these folks moved into larger houses and were unable to sell their first homes on the weak market. HFA, apparently, has decided that renting out a home after taxpayers have given you money to buy it is a violation of federal law.

So, let's get this straight: the government uses taxpayer money to subsidize home purchases, reducing supply and pushing prices through the roof; this backfires horribly, as the price increases make homes so unaffordable that the market collapses; the government takes no responsibility for its role in these events, and blames private lenders for their misleading loans and ruthless foreclosure practices; and now the government is . . . using an obscure bit of federal policy that no borrower knew about to throw people out of homes, even though those people are current on their payments.

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