Actually the headline was "approval is near for bill to help U.S. homeowners" in the NYT. The Post waited until the first sentence to tell readers that "a plan to help thousands of troubled homeowners avoid foreclosure" won bipartisan support in the Senate. Well, here at BTP we don't attribute motives to politicians, since we are not mind readers and do not know what is going through their heads as they vote on legislation. Apparently, the NYT and Washington Post have more confidence in their ability to determine the motives of politicians and feel the need to very pointedly share their assessments with readers. The housing bill in question allows banks, not homeowners, to decide which loans get brought in under the program. While the lenders would have to accept much less than the original value of the home, it stands to reason that no lender will ever bring in a loan if they think they will get less money under the program than they would by either carrying through a foreclosure or doing its own workout. Since the decision on whether to bring a loan into the program is left with the lender, it would not be absurd to think that the purpose is to help lenders (many of whom are very generous in their campaign contributions). The program also does not impose any price caps to insure that it is not insuring mortgages at bubble-inflated prices. When the sale price is very high relative to rent it means that homeowners are paying more in ownership costs than they would to rent a comparable unit. For example, if the sale price is 25 times the annual rent, as is still the case in many bubble markets, then the homeowner can easily be paying twice as much in ownership costs as they would to rent the same home. For a $200,000 home this difference can be more than $8,000 a year. For a moderate-income family earning $40,000 a year, that money will come at the expense of spending on child care, health care and other necessities. If a housing bill was intended to help homeowners rather than banks, it might have put a cap on the ratio of sale price to rent for a mortgage covered under the program, or it would simply have set the guarantee price as a multiple of appraised rental value.
--Dean Baker
