As Congress moves to aid distressed US homeowners, the prospect of a new rescue is drawing fire from a diverse array of activists, economists and consumers opposing what they call a bailout.
The House of Representatives on Thursday approved a bill to create a 300-billion-dollar federal guarantee for new mortgages for people who may be at risk of losing their homes. President George W. Bush threatened to veto the measure, calling it a reward for speculators and lenders.
While lawmakers are eager to avert a wave of foreclosures that could trigger further economic shock waves, some argue that any new program would help a small segment of the population who made risky bets on the housing market.
“Do not bail out greedy homeowners that took out risky mortgages to buy homes they can’t afford,” wrote a Norwalk, California, resident identified as David R. on a website called AngryRenter.com launched by the conservative activist group FreedomWorks.
The website has collected over 44,000 signatures of renters opposed to using tax dollars to aid what it claims is about two percent of the US population facing foreclosure.
“What happened to personal responsibility? What happened to living within your means?” added another commenter identified as Jennifer M. of Houston, Texas.
“People who live in houses they can’t afford, and knew they couldn’t afford, should not be bailed out. I rent a house and am saving to buy a house. I will buy a home I can afford.”
Diana Furchtgott-Roth, an economist at the conservative Hudson Institute, said any new program would be “taking from people who made prudent decisions … to give to people who have been fiscally irresponsible.”
She said lawmakers still want to act on the plan because “they all want to be the knight coming to the rescue on the white horse.”
Kenneth Scott, professor emeritus of law and business at Stanford University, said such aid programs can be easily manipulated to reward risky activity.
“If the prerequisite for getting assistance is that you’re delinquent, it’s very easy to become delinquent,” he said. “You just stop paying and if that gets you a significant amount of money, what would you expect people to do?”
Scott said there is pressure to help homeowners in the wake of a Federal Reserve-backed effort to rescue investment bank Bear Stearns in March.
“The question that ought to continually be asked is whether you are creating incentives for a repetition of the present overhang,” Scott said.
He added that speculators and unscrupulous lenders “will anticipate there would be some form of government payment if things don’t go well.”
Yet an aid program has strong political momentum as seen by the House vote of 266 to 154.
A similar plan is in the works in the Senate, where Democrat Chris Dodd hailed the work done by the House as “a clear signal to Americans — and the White House — that Congress is committed to helping people keep their homes and stabilize the markets.”
Representative Steny Hoyer, the majority Democratic leader in the House, said the bill would help a troubled economy.
“The slumping housing market has had negative, rippling effects throughout our economy,” he said. “And thus, it is imperative that we take responsible, reasonable steps such as this to strengthen our weak economy, and ultimately benefit all of us.”
But House Republican leader John Boehner said the measure is “forcing responsible homeowners and taxpayers to pick up a 300-billion-dollar tab to bail out scam artists, speculators, and reckless borrowers.”
Troubled loans and subprime borrowers cover a broad economic spectrum including many wealthy borrowers in some of the booming home markets, said Todd Sinai, economist at the University of Pennsylvania’s Wharton School of Business.
Sinai said it is hard to come up with an aid package that is fair to all taxpayers. Most programs being mulled “tend to be bailouts to the lenders, not the borrowers,” he said.
“It is hard to argue that if there were no broader societal benefits, that bailing out subprime borrowers who were not the victims of fraud or deception is good economics,” Sinai told AFP.
“The reason people are doing it is that people are worried about a collapse of the housing sector, which would be bad for everyone.”