Now we are seeing the consequences of that misguided policy. For years, we and others have been predicting this meltdown. We have been warning policy makers that pushing home-ownership so aggressively could be disastrous not only for the hardworking Americans lured into unsustainable home-ownership, but also on our local communities and our national economy.
That is exactly what is happening now. People are losing their homes, local communities are struggling with blight and crime, and our national economic growth is at risk. We understand that policy makers are worried that this situation might spill over into the broader economy, and we support efforts to help our country avoid a housing-induced recession. It remains to be seen whether this somewhat controversial proposal will do that.
What it won’t do is change the fact that house prices were greatly inflated by issuing millions of non-traditional, poorly underwritten loans to borrowers who could not really afford them. It won’t change the fact that house prices clearly remain above their equilibrium level, as shown by the continuing drop in house sales and increase in the inventory of houses for sale.
The mortgage market meltdown represents a failure of government oversight and regulation. Despite repeated warnings, nothing was done to prevent it. On the contrary, the federal government gave a “green light” to this bubble by trying to push homeownership without limits and even trying to create a federally insured no-down payment mortgage.
Unfortunately, while there was much the government could have done to prevent this crisis, there isn’t much it can reasonably do now to alleviate it. What it can do, however, is recognize its own mistakes and ensure that this doesn’t happen again. And that means, among other things, recognizing that home-ownership isn’t the right housing choice for all households at all points in their lives. Housing our diverse nation well means having a vibrant rental market along with a functioning ownership market. It’s time we adopt a balanced housing policy that doesn’t measure success solely by how much home-ownership there is.”