Ok. After many months now spent beating various government officials over the head in regards to housing, one of them has finally come along and given a speech that I agree with.
The funny thing—to me at least—is that came courtesy of Treasury Secretary Hank Paulson no less, one of our favorite targets.
Hank, you may remember, was one of the many folks who seemed determined to call a bottom in housing when it was actually nowhere in sight.
In fact, here’s what he said about the bottom in housing market going back to last spring:
“All the signs I look at” show “the housing market is at or near the bottom.”
—Hank Paulson, April 20, 2007
“In terms of looking at housing, most of us believe that it’s at or near the bottom.”
——Hank Paulson, July 2, 2007
Of course, it wasn’t long after those two head-scratchers that Hank actually began to see the light.
In fact, just last month he reversed himself entirely when he said that “the worst was just beginning” for housing. When I heard it I practically fell out of my chair.
But to be fair and give credit where credit is due, it does seem as though Paulson has now finally come to his senses.
It’s from a speech that he gave today and for some reason it has given me the hope that someone in charge gets it—especially in regards to the idea that the all of this mess will someday end up in the laps of the taxpayers.
Read it and let me know if you agree. (The emphasis in bold is my own)
Remarks by Secretary Henry M. Paulson, Jr.: U.S. Housing and Mortgage Market Update before the National Association of Business Economists.
“I have said before that housing poses the biggest downside risk to our economy, and most forecasters expect a prolonged period of adjustment. It is an appropriate time to take a comprehensive look at the state of our housing and mortgage markets and their impact on the economy. I will do that today. My careful review has led me to three main conclusions.
First, many in Washington and many financial institutions have been floating proposals for a major government intervention in the housing market, with U.S. taxpayers assuming the costs of the riskiest mortgages. Today, 93 percent of American homeowners – 51 million households – pay their mortgages on time. Many are on tight budgets, sacrificing other things in order to make that payment. Only 2 percent are in foreclosure.
Most of the proposals I’ve seen would do more harm than good —- bailing out investors, lenders or speculators who, instead of getting a free-pass, should be accountable for the risks they took. Let me be clear: I oppose any bailout. I believe our efforts are best focused on helping homeowners who want to stay in their homes.
Second, this is a shared responsibility of industry, government and homeowners. We in government are working to expand options through the FHA, and we’ve worked with the industry to reach as many homeowners as possible to let them know that help is available. There is more that government and industry can do, and our efforts will continue to evolve. Homeowners have responsibilities as well. If borrowers won’t ask about solutions, there is only so much that can be done on their behalf.
Third, the current public discussion often conflates the number of so-called “underwater” homeowners – that is, those with mortgages greater than the value of their house – with projections of foreclosures. Let’s be precise: being underwater does not affect your ability to pay your mortgage, nor create a government responsibility for assistance. Homeowners who can afford their mortgage should honor their obligations —- and most do.
Obviously, being underwater is not insignificant to homeowners in that position. But negative equity does not necessarily result in foreclosure. Most people buy homes as a long-term investment, as a place to raise a family and put down roots in a community. Homeowners who can afford their payments and don’t have to move, can choose to stay in their house. And let me emphasize, any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator – and one who is not honoring his obligations.
We know that speculation increased in recent years; a resulting increase in foreclosures is to be expected and does not warrant any relief. People who speculated and bought investment properties in hot markets should take their losses just like day traders who speculated and bought soaring tech stocks in 2000.”
Of course, I do wonder whether or not any of this is actually his own opinion or the result of some clever “talking points.”
Nonetheless-true or not-it is a step in the right direction. A bail out is a moral hazard that we can ill-afford.