Families locked out

The short-term stimulus package is a good step, but it doesn't do anything for the declining housing market. Borrowers need help, and housing agencies need reform.

By Mel Martinez
Published February 14, 2008

Ronald Reagan once pointed out that governments tend not to solve problems, only to rearrange them. That thinking applies to the economic stimulus package - it's a well-intended measure that will help our economy in the short-term. But this relatively swift action by Congress falls short of addressing the core of our economic problems: the decline of the housing market.

The looming threat of a recession reminds us that our economy is inextricably tied to the housing market - even more so than many imagined. In Florida, our communities are suffering the effects of the national subprime mortgage market collapse. Almost 300,000 Florida homeowners entered foreclosure proceedings last year - double the 2006 filings.

As a result of the national situation, banks have tightened their lending standards for potential home buyers. Tighter lending standards have resulted in limited access to credit and higher housing inventories. Without access to credit, many families are either locked into a rental situation or locked out of refinance options. A family that can't afford higher adjustable rate loan payments or a refinance option has one avenue and that is foreclosure - compounding the original problem banks were trying to avoid.

Across our nation, about 1.8-million subprime loans are going to "reset" to substantially higher interest rates in the next 18 months. That means an estimated 1.8-million homeowners will see their mortgage payments potentially climb to a financially untenable amount, forcing the likely sale or foreclosure of their property.

With more and more families facing the reality of foreclosure, we must use the resources of the federal government in a targeted and responsible manner to mitigate future losses and put our housing market on the path to recovery.

Currently, the inventory of existing homes for sale stands at nearly 4-million - almost double the number in January 2005. As my colleague Sen. Johnny Isakson of Georgia has proposed, we can reduce that number by offering up to a $15,000 tax credit to anyone purchasing a new home, a foreclosed home, or a home where foreclosure is pending. I believe that such a tax credit will provide an immediate boost to the housing market and to the nation's economy, just as a similar tax credit did during the mid 1970s.

In addition to bringing better balance to the housing market, there need to be modernizations at the Federal Housing Administration. For 72 years, FHA has been a mortgage industry leader, helping more than 34-million Americans become homeowners at no cost to taxpayers. Modernization of this program is long overdue, and will help more Americans become homeowners without having to risk the subprime mortgage market.

There also needs to be better oversight of Government Sponsored Enterprises such as Fannie Mae and Freddie Mac - entities that provide liquidity in the secondary mortgage market. The problem with the lack of GSE oversight is especially acute in the wake of the economic stimulus package because while their ability to back larger loans has increased, their inadequate oversight has remained static. I have joined with several of my colleagues on the Senate Banking Committee to try to provide greater regulation and supervision of housing GSEs. Congress must act to protect taxpayers and focus the GSEs back on their original mission of facilitating affordable housing.

Finally, Congress must do everything it can to bring greater transparency to the home buying process. Many factors are to blame for our current housing crisis, but there is no doubt that too many people were intentionally led into signing up for loans they simply could not afford. Buying a home is perhaps the most important decision a family can make, and home buyers can only make good decisions when they are well-informed. Reforming Real Estate Settlement Procedures - the laws that govern closing on a home purchase - will provide better accountability of all residential mortgage loan originators and help to ensure fairness in home buying.

We've got to stop unscrupulous loan originators from continuing to ensnare unsuspecting people in predatory loans. To this end, I have worked with my colleague from California, Sen. Dianne Feinstein, to establish uniform professional standards and a national registry for all mortgage loan originators.

As the former secretary of Housing and Urban Development, I place great value in and priority on helping every American experience the joy of home ownership. Stimulus for our economy is necessary, but for continued national prosperity, the larger problem involving the nation's housing situation must be solved; better oversight, more transparency and modernization efforts are all parts of the solution.

Mel Martinez is a U.S. senator from Florida and former secretary of the U.S. Department of Housing and Urban Development.

[Last modified February 13, 2008, 23:08:58]