How to limit home ownership for the
poor
By
STAR PARKER
Founder & PRESIDENT
COALITION ON URBAN RENEWAL & EDUCATION
The Mortgage Reform
and Anti-Predatory Lending Act of 2007 has passed out of Chairman
Barney Frank's House Financial Services Committee. It's now headed
to the full House for a vote. In the name of protecting the poor
from market predators it will in actuality protect the poor from
wealth.
This is yet a new
chapter in the grand liberal tradition that advances the illusion
that government micromanagement of private lives and markets will
make us better off. We already have laws against fraud and theft.
But for liberals, government isn't there to enforce the law. It's
there to run our lives.
The legislation
assumes that when private individuals make mistakes they can't
figure out what they did wrong and make adjustments and that even if
they could they wouldn't.
We're going to wind
up with new and onerous regulations in the business of making loans
to consumers for purchasing homes, and as a result, fewer loans will
be made and we'll all be worse off. Those who will be penalized the
most will be the low-income families who the new regulations will
supposedly protect.
Should fraud be
permitted in our society? No. Should government interfere with
private individuals' latitude to determine on their own what risks
they wish to take and the willingness of others to finance those
risks? Absolutely not.
Frank's bill crosses
far over the line into regulating private lives and behavior where
he and government have no business.
Why will this hurt
the very low-income families it purports to protect?
We already have
plenty of experience with the costs of so-called consumer protection
laws in general and those designed to regulate mortgage lending in
particular.
In a recently
published article in the Cato Supreme Court Review, Professor Marcus
Cole of the Stanford University Law School discusses the fallout of
lending laws in Illinois.
The Illinois Fairness
in Lending Act passed in 2005 gives the state oversight authority on
loans made in nine designated zip codes in the state. These zip
codes are, of course, areas in which residents are mostly
lower-income households.
The law places
authority in a state bureaucracy to review all applications for
mortgages in these designated zip codes. The bureaucrats who review
these applications determine if the borrower needs credit counseling
and requires the lender to pay for it if required.
The costs of the
counseling are estimated to be as high as $700 and can delay the
processing of the loan up to a month.
The borrower has no
option to forego this counseling, whose objective is "to protect
homebuyers from predatory lending in Cook County's at-risk
communities and reduce the incidence of foreclosures."
What's the result?
Cole reports the
following: "Instead of protecting hardworking would-be homeowners
from predatory lending, the new law protected them from credit.
Within just a few months more than 30 mortgage lenders refused to
lend on homes purchased in the targeted zip codes. Those lenders
determined to service these communities saw a rise in their costs,
which translated into higher interest rates on their loans."
The purported cure
was worse than the disease. Cole goes on to note that, "home sales
in the designated zip codes dropped an average of 45 percent in just
one month after the bill took effect. Home prices plummeted,
draining relatively poor but hardworking people of what little
equity they had in their homes."
The experience is
similar in other states where governments have authorized
bureaucrats to insert themselves between lenders and borrowers. Yes,
the number of defaults have declined. They have declined because the
number of loans have declined.
The Wall Street
Journal reports that currently "80 percent of subprime loans are
being repaid on time and another 10 percent are only 30 days
behind."
These are
overwhelmingly loans to low-income families. Probably, under Barney
Frank's new regulatory regime, many of these loans would not have
been made and the families in these homes would be renting and
considerably less wealthy than they are today.
To quote former Texas
Rep. Dick Armey, "freedom works." But it can only work if we let it.
Many have paid and
are paying a great price for the errors and excesses of recent
years. We now should allow private individuals and private markets
the opportunity to self correct, which is what will happen.
If government steps in to pre-empt the
market and Barney Frank is the one to decide who gets loans, the
rich will stay rich, the poor will stay poor, and we'll have one
more reason for already skeptical Americans to question the American
dream.
---------------------------------
Star Parker is president of the
Coalition on Urban Renewal & Education and author of the new book
White Ghetto: How Middle Class America Reflects Inner City Decay.
Prior to her involvement in social
activism, Star Parker was a single welfare mother in Los Angeles,
California. After receiving Christ, Star returned to college,
received a BS degree in marketing and launched an urban Christian
magazine. The 1992 Los Angeles riots destroyed her business, yet
served as a springboard for her focus on faith and market-based
alternatives to empower the lives of the poor.
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