This August 2004 Barron’s article by James Bovard castigates Bush for his housing policy.
Read the entire article here.
ONE OF THE PROUDEST ELEMENTS of President Bush’s “compassionate conservative” agenda has been government financial support to home buyers for down payments. Bush is determined to end the bias against people who want to buy a home but don’t have any money. But he is exposing taxpayers to tens of billions of dollars of possible losses, luring thousands of moderate-income families into bankruptcy, and risking the destruction of entire neighborhoods.
The president is also urging Congress to permit the Federal Housing Administration to begin making zero down-payment, low-interest loans to low-income Americans. The administration forecast that zero down-payment mortgages could be given to 150,000 home buyers in the first year. Federal Housing Commissioner John Weicher said in January 2004 that “the White House doesn’t think those who can afford the monthly payment but have been unable to save for a down payment should be deprived from owning a home,” National Mortgage News reported. While zero-downpayment mortgages have long been considered profoundly unsafe (especially for borrowers with dubious credit history), Weicher confidently asserted: “We do not anticipate any costs to taxpayers.”
Free down payments carry catastrophic risks. The default rate on mortgages from the largest downpayment-assistance organization, Nehemiah Corp., is 25 times higher than the nationwide mortgage-delinquency rate, according to department of Housing and Urban Development Inspector General. The default rate on Nehemiah mortgages quadrupled between 1999 and 2002, reaching almost 20%.
Millions of American homeowners are at risk of sustaining collateral damage from this debacle. We should recall the role of a similar program launched in 1968 to provide federally insured mortgages to poor people. The result was a disaster, and not just for the poor people who could not actually afford the mortgages they were given. Since most families in the program had almost no equity in their homes, they had nothing to lose if they ran into financial difficulty. It was often cheaper to abandon the houses than to repair them. Neighbors who were not in the program found themselves surrounded by abandoned homes, and their property values — built over years of individual effort, thrift, responsibility, and self-reliance — vanished.
Transferring the risk of homeownership from buyers to taxpayers does not endow virtue in America. Giving people a handout that leads them to financial ruin is wrecking-ball benevolence.