A Free Market Approach To Housing Crisis

April 29, 2008 - Home-value depreciation has led a growing number of Arizonans to walk away from their homes rather than make monthly mortgage payments. This is yet another facet of the crisis rocking the housing market and reverberating throughout the American economy. Congress is looking for ways to help, but the costly, big-government solutions being discussed are worse than the problem.

The Senate recently passed a housing package that would cost taxpayers $15 billion. Its provisions include a $4 billion grant for purchasing and refurbishing foreclosed-on properties, an expansion of the Federal Housing Administration’s loan limit to $550,000, and $100 million to fund counseling for at-risk homeowners.

In the House, Financial Services Committee Chairman Barney Frank, D-Mass., has introduced the FHA Housing Stabilization and Homeownership Retention Act, which would establish $300 billion in new guarantees for borrowers transitioning into FHA-backed mortgages, provide $30 million for neighborhood reinvestment and $200 million for counseling of at-risk homeowners.

Neither plan requires responsibility from the reckless lenders, investors and borrowers who created the crisis. Instead, the financial burden falls to hardworking taxpayers. Rather than bailouts that dump money on the problem, Congress should make it easier for Americans to help themselves.

Thanks to legislation providing tax incentives for retirement savings, millions of Americans have retirement-savings plans. According to the Survey of Consumer Finances, 44.5 percent of working households participate in tax-deferred retirement programs, and Americans have over $17.5 trillion, almost 40 percent of our country’s household financial assets, in retirement-savings plans.

For most Americans, their home is their biggest asset, and equity in their home is a central part of retirement savings. Foreclosure severely affects credit and damages financial security. To avoid this, Americans are pulling funds from retirement accounts.

Accessing retirement funds prematurely comes with penalties. In light of the mortgage crisis, I have introduced the Homeowner Empowerment Act of 2008, which would temporarily allow Americans to tap into retirement plans, without paying penalties or taxes, to make their mortgage payments or the personal mortgage payments of any other individual. Enabling borrowers, family or friends with retirement accounts to make mortgage payments would stave off additional defaults.

The funds could not be used for any other purpose; the trustee of the account would make payments directly to mortgage companies. Those who expend protected retirement savings would have the option of replacing withdrawn assets over a 12-year period. Any individual who ddid not replace assets pulled from a tax-deferred account would have to pay taxes due by the end of the repayment period.

Without burdening taxpayers, this bill reduces the number of defaults, shores up the lending market, increases the disposable income of U.S. consumers and, consequently, helps the sagging economy.

This is a free-market response to a serious economic problem facing America. The House Democratic and Senate proposals would use massive quantities of taxpayer money to bail out a small segment of society - out of 55 million outstanding mortgages in the United States, 51 million are being paid on time - that acted imprudently or unethically in many instances. American taxpayers are already strained. They shouldn’t be forced to pay for the irresponsibility of others.

John Shadegg, a Republican, represents Arizona’s 3rd Congressional District, which includes north Phoenix, Paradise Valley, Carefree and Cave Creek.

A free-market approach to housing crisis
John Shadegg | The Arizona Republic