By Kay Bailey Hutchison-Capitol Comment
There is no greater symbol of the American Dream than home ownership. In a country that prizes freedom and economic independence, Americans’ homes are a lifelong investment and, for many, their primary asset. However, in recent months, a decline in the U.S. housing market has threatened the financial security of many Americans and has placed the nation’s economy at risk. As lawmakers scramble for a fix, it is preferable that solutions be guided by free market principles, rather than sweeping government intervention or taxpayer-financed bailouts.
A fair assessment of the situation is the first step to an appropriate response.
During the final quarter of 2007, home prices declined 8.9 percent — the largest year-to-year drop in the 20-year history of the index. In January, sales of existing homes dipped to a 10-year low. Though some are able to shoulder the burden of zero or negative equity, others can’t afford their mortgage payments. This has led to a rise in foreclosures. Almost all homeowners have been affected, because low home sales and foreclosures have created a housing surplus that has driven down home values. Falling home prices have placed many homeowners in the precarious position of owing more on their mortgages than their houses are worth.
Yet, there are some positive indicators that are often overlooked. The U.S. Census Bureau reported that homeownership rates were still near an all-time high at the end of 2007. Of the 51 million American households financing their homes, 93 percent pay their mortgages on time, with only two percent of these households in foreclosure. Further, according to the Mortgage Bankers Association, foreclosures among prime loans and Federal Housing Authority (FHA) loans have remained stable since 2001.
But it is the disproportionate rise in subprime adjustable rate mortgages that are in default and risk foreclosure that is cause for real concern. These loans are granted to borrowers who don’t qualify for the best market interest rates. They are periodically adjusted to a range of market indexes, as opposed to a more stable fixed rate mortgage. Only 13 percent of all outstanding mortgages are subprime, but defaults on these loans accounted for 50 percent of the foreclosure starts in the third quarter of 2007. These foreclosures negatively impact the overall economy and require a measured response to help prevent or combat recession.
Sen. Kay Bailey Hutchison is Chairman of the Senate Republican Policy Committee.
Source: http://www.mexiadailynews.com/opinion/local_story_070102342.html?keyword=secondarystory |
