Abuse of the system means one out of every six subprime loans in the state is delinquent.
(PRWEB) October 9, 2007 -- Lew Uhler, President of the National Tax Limitation Committee, comments on the rise of foreclosures in Ohio.
Subprime mortgage lending has become front page news. As housing prices have stalled, some homeowners with adjustable rate mortgages are in trouble. Lenders are going under and investors are losing money.
Foreclosure rates in Ohio are three times the national average. The Mortgage Bankers Association reports that for the third quarter in a row new foreclosures in the state are at record levels. Unemployment bears some responsibility, but Uhler explains that "the biggest cause is abuse of creative financing: One of every six subprime loans in the state is delinquent."
He warns that the problem could get worse as more adjustable rate mortgages are reset at higher interest rates. Leading Ohio banks, like National City Corp, may suffer additional losses. Investors in both mutual and hedge funds may take another
hit.
Under political pressure, the Ohio Housing Finance Agency plans on bailing out troubled homeowners. The Foreclosure Prevention Task Force has proposed putting more state money into urban "redevelopment" programs and even forcing lenders to bail out their own borrowers.
These are all bad ideas, warns Uhler, which ''would put all Ohioans at risk.'' After all, he notes, "Taxpayers would be responsible if the new loans go bad."
A taxpayer bailout also would be unfair to the vast majority of homeowners. There's only a limited amount of mortgage money available, Uhler says. We shouldn't take it from responsible home buyers to bail out irresponsible borrowers, lenders, and investors who made bad decisions.
Equally important, a housing bailout would encourage anyone else who loses money on a loan or investment to ask the government to cover the bill. Homeowners collect the gains on their houses in good years. They ''shouldn't expect to pass losses off to taxpayers in a bad year,'' says Uhler.
Federal bailout proposals are equally bad, he warns. Having the Federal Reserve manipulate the money supply to push down interest rates for homeowners could restart inflation.
We shouldn't underestimate the pain felt by someone who loses their home, Uhler says. "But a government housing bailout will turn all of us into losers," he warns. Ohio lawmakers should let the market adjust.
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