Barack vs. Hillary on Housing
January 31, 2008 – 9:50 pmBarack Obama articulated a key point regarding housing in tonight’s Democratic debate. He said that if you freeze interest rates as Hillary wants to in order to “protect” homeowners, you’d actually punish others by raising their interest rates.
This is a fact that everyone in the mortgage/econo blogosphere knows…..if you fix prices, the market will break down. Banks will lose money on troubled/distressed/irresponsible borrowers whose interest rates are protected and will make up the difference by overcharging everyone else. Interest rates will increase overall, compounding our housing problems.
So I’m glad at least one of the Democratic candidates can articulate a basic understanding of the economic forces at play here.
Not discussed at length was Hillary’s idea to freeze foreclosures for 90 days to “work out” problems. It strikes me that much of the lending business could grind to a halt during this period.
The last thing we need is large scale government intervention on behalf of distressed borrowers. For the housing market to repair itself, house prices have to fall, which means the government has to let them fall.
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3 Responses to “Barack vs. Hillary on Housing”
I was glad to see this, but it makes his other ideas even harder to forgive because it seems clear that he knows better. I wrote a letter after reading material from his website:
http://www.barackobama.com/issues/economy/#mortgage-issue
Here is my letter in case you are interested:
http://www.topped-with-meat.com/~bendra/Obama.pdf
By bdrasin on Feb 1, 2008
An excellent letter to Obama from bdrasin (link in last comment). Everyone should read it and I hope it gets the exposure it deserves with the Obama people.
By Clif on Feb 1, 2008
We froze foreclosures in the Great Depression, and then formed the GSEs to mop up the mortgages that couldn’t be worked out. I really haven’t seen any analysis of how that worked (or didn’t) for folks at the time. I’m not keen on paying an extra point on my next mortgage so the idiot down the street who pulled $200k out of his house can keep a teaser rate for 5 years. On the other hand, I’ll gladly pay an extra point to keep the economy from becoming so unstable that we have mass unemployment, crime waves, political instability. Depends how bad things really are.
By zgirl on Feb 1, 2008