FreedomWorks

I wanted to pass along a recent op-ed that I published in The Washington Times about a subprime mortgage bill being considered by the U.S. Senate. Politicians need to realize that this plan is a bailout that will stick taxpayers with the bill. The legislation would only make it more difficult and expensive for consumers to get a new home.

When you are done reading the op-ed, be sure to TAKE ACTION to send a message to your Senators, asking them to oppose this bad public policy.

Shelter from the FHA

As part of a continuing legislative reaction to the slide in the housing market and the subprime mortgage problem, a bill to modernize the Federal Housing Administration has recently passed the House of Representatives.

Similar legislation passed out of committee in the Senate, but the full Senate has not yet acted. Although the "Expanding American Home Ownership Act of 2007" promises to make it easier to own a home, some troubling factors may leave taxpayers on the hook for loans that cannot be paid back. Like many of Washington's policy initiatives, this is another bad public policy wrapped in the language of love.

While House Financial Services Committee Chairman Barney Frank extols the virtues of homeownership and giving opportunities to those never able to afford a home before, the push to ease the requirements for receiving a federally insured loan may not square with the market's present rise in home loan defaults.

The legislation increases the size of loans the FHA can insure and extends the length of the mortgage, among other things. Yet, as the present slump in the housing market demonstrates, this could increase the taxpayer's exposure to risk, should loans default.

Mr. Frank's efforts to increase the use of FHA insured loans so more people can experience the "American Dream" of homeownership may sound good, but the devil is in the details. A small but pernicious piece of the bill would replace the requirement for a financial audit of mortgage brokers with a requirement to post a $75,000 surety bond. During committee hearings, there was much testimony about the expense of the financial audit for the poor broker and how doing away with this oversight would make homeownership more affordable.

But the audit requirements are there to protect taxpayers, who may be at risk if defaults on FHA loans significantly rise. The audit is a tool to ensure that lenders are responsible and do not unduly stress the system's finances. To date, these audits have served taxpayers well, with the FHA program bringing in enough revenues to cover potential losses. A laxer system could pose problems for taxpayers.

Many in Congress expound on the "need to make homeownership more affordable to more Americans" while fretting about the decline in the housing market and the increase in foreclosures. Policies that buffer buyers and lenders from the unavoidable risks of the real estate market may prove counterproductive, leading to another round of defaults and foreclosures.

If Congress is truly concerned about home ownership it may be more prudent to revisit tax reform and stop taxing young couples so much they cannot buy. Removing procedures to substantiate a broker's financial viability and their compliance with the FHA guidelines do not help the homeowner. This simply subjects the taxpayer to even greater risk while allowing brokerage firms take on more loans that may put the whole system at risk of failure.

If current standards are rewritten, we are putting taxpayers at risk, potentially re-creating the Savings and Loans fiasco of the early 1980s. If Congress is determined to use taxpayers' resources to expand homeownership, it is only prudent that they ensure the taxpayers are protected. Removing the financial audit to prove a broker is financially sound and can comply with FHA guidelines falls short of this goal.

The House has failed taxpayers in this respect. We can only hope the Senate will do the right thing and stand up for the taxpayers.