The pressure on Congress to “do something” on housing appears so great that many members normally inclined to keep Congress out of the housing market, now feel like that have to vote for something. Even if everyone knows some legislation will actually do very little and will only make the situation worse.
To help these members The Heritage Foundation has drafted “Eight Common Sense Standards for Housing Legislation” designed to mitigate Congressional meddling. Following them would reduce the chance that taxpayers dollars would be used to help the wrong people or would cause distortions in the housing market. However, the best approach to the turmoil in the mortgage market is still to allow the free market system to act.
- Anyone who lied on their mortgage application — or made any major misrepresentations – should not be eligible for any refinancing assistance at all.
- Any government assisted refinancing should be limited to homeowners who use that home as a principal residence.
- Assistance should only be given where homeowners have used some of their own money for a down payment. Equity resulting only from write downs of the loan or government assistance is not sufficient.
- No assistance should be available to speculators, investors, owners of second or vacation homes, Realtors, home builders, mortgage brokers or bankers, or anyone otherwise associated with the mortgage industry.
- No refinancing assistance should be available if the homeowner has other assets that could be used to repay the mortgage or to repay equity lines of credit or a refinancing that substantially reduced the equity in the house.
- Taxpayers should not have to guarantee the full value of a refinanced house. Any guarantee – by the FHA or any other taxpayer funded agency – should be limited to a portion of the loan only. The lender should bear the rest of the risk.
- Participation must be voluntary. No lender or owner of a mortgage should be forced to participate.
- All local and state government purchases of foreclosed homes must be voluntary. No homes should be taken by eminent domain.