Letter to the Washington Post, #11

Sebastian Mallaby’s April 21st column, “Housing Sense in Congress?” seems to be implying that it is homeowners who are to blame for the subprime meltdown. “Homeowners,” he writes, “have no moral claim to government assistance.”

Instead, Mallaby says that Congress ought to find ways to provide partial protection to the lenders who issued millions of sub-prime mortgages, then bundled and sold them to investors. In order to stabilize housing prices, the Federal Housing Administration ought to protect lenders from further losses, “if they agree to forgive part of a loan rather than kicking a family onto the street,” he writes.

In such a case, Mallaby notes, “homeowners would get a break, which is unfortunate.”

Such a break. The homeowners in question, who may have applied for and received one loan in their lives, will lose all their equity anyway. In most cases, these homeowners had little insight into what might go wrong and no idea that they were the recipients of unusual “subprime” loans.

But the lenders knew. And the lenders knew that such profitable loans were also risky. Now, Mallaby apparently believes that the lenders who profited greatly during the rise in housing prices are the ones with a “moral claim” on government action.

If Congress wishes to slow the freefall in market prices, a better option would be Own-to-Rent (OTR), a proposal first advanced by Dean Baker of the Center for Economic and Policy Research (CEPR).

OTR would require lenders to offer homeowners the opportunity to rent their home at fair market prices before beginning foreclosure proceedings. This would allow people to stay in their homes, stabilizing neighborhoods and forcing lenders and investors, who profited from the increase in housing prices, to bear the market consequences of the collapse in prices.

Jeff Epton
807 Taylor St., NE
Washington, DC 20017

202 506-7470