President Bush is not doing enough for those who are suffering in our housing crisis.
When the mortgage bubble burst, Bush belatedly offered up a plan. But it provides more for speculators than for those low and moderate-income people who are struggling with ballooning mortgage payments. The president would give the Federal Housing Administration (FHA), an agency that was teetering on the brink of elimination, a greater role in insuring mortgages.
People who borrowed from private sector lenders will be allowed to switch their mortgages to lower-cost FHA mortgages, depending on their credit and payment histories. But the FHA could charge “riskier” borrowers higher rates of interest than other borrowers. It is the risky borrowers who need lower rates, not the wealthier borrowers with great payment histories.
The other key part of the president’s plan would provide tax breaks to borrowers whose loans are partly forgiven by lenders. In the past, forgiveness of a portion of a mortgage has been taxed as ordinary income, but the president would waive the tax liability temporarily.
Who wins? Higher-income taxpayers who pay higher tax rates. Waiving tax liability has much less value to someone whose effective tax rate is 15 percent than someone whose effective tax rate is 35 percent.
The president’s plan does little to deal with the scourge of sub-prime lending. Some economists argue that sub-prime loans are the only way some borrowers can get into the housing market. Indeed, in the past decade, we’ve seen an increase of more than 12 million homeowners, largely because of the availability of non-traditional mortgages. But many of these loans were shady, and the lenders and brokers unscrupulous. It would have been far better had the FHA, Fannie Mae and Freddie Mac lived up to their promise of providing affordable loans to those who most need them than to let the vultures in the private sector swoop in on unsuspecting consumers.
These speculators will benefit from Bush’s partial bailout if Congress goes along and decides that the FHA will provide refinancing for troubled lenders. At the very least, Congress should impose limits on the size of the loans the FHA will refinance, so that those unable to find other loans get the greatest benefit from this new initiative.
One more thing: By focusing exclusively on homeowners and lenders, Bush obscured the fact that those who do not own homes also face a housing crisis. These families, mostly low income, have seen rents rise in the same ways that housing prices have, and they may rise faster now that more people are being thrown from their homes onto the rental market. The majority of African-Americans and Latinos are not homeowners; neither are 25 percent of all whites. Some families pay as much as half of their incomes on rent. Where is the focus on renters who desperately need affordable housing? The FHA would subsidize homeowners. But where is the subsidy that will cause builders to create more affordable housing for renters? The mortgage crunch is only part of the housing crisis. Let’s not forget the squeeze on renters.
Julianne Malveaux is an economist, author, and president of Bennett College for Women. This column was produced for the Progressive Media Project, which is run by The Progressive magazine, and distributed by the Tribune News Service.