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Can Government Ease Subprime Mortgage Woes? Finance Expert's Study Explores Remedies, Dangers
For Immediate Release September 7, 2007
Pete Sepp, (703) 683-5700
(Alexandria, VA) -- Some policymakers are pressing for government intervention to nurse ailing "subprime" mortgage markets and consumers back to health, but a new study commissioned on behalf of the nonpartisan National Taxpayers Union (NTU) is delivering a warning: don't overmedicate.
"Any issue that touches upon home ownership, and the fear of losing one's home, is bound to generate passionate discussion," said study author Jacob Vigdor, Associate Professor of Public Policy Studies and Economics at Duke University. "While many agree that the current wave of delinquencies and foreclosures will strain households and communities, there is considerable disagreement as to whether government involvement is advisable, and if so, what shape it should take."
Recent tremors in the housing market have significantly impacted some subprime mortgage lenders and borrowers, leading to many proposed "fixes" from state governments, Congress, and most recently President Bush. But Vigdor, a Harvard-educated economist and expert in housing issues, believes that intervention in this market could have unforeseen consequences. Among his contentions:
If most "solutions" under consideration would make subprime mortgage woes worse, what would help? Vigdor asserts that streamlined (and strengthened) disclosure rules to give both loan parties a clearer sense of their responsibilities; community-level financial education programs; and, foreclosure counseling, are all elements of a reform effort that "carefully balances a government role for regulation with the need for borrowers, lenders, and investors to bear responsibility for their own actions."
NTU V-P for Communications Pete Sepp, who has followed and testified on financial industry reform issues since the S&L debacle, agreed with many of the report's findings. "History shows that government ineptitude has been far more harmful to taxpayers than government inaction," he said. "The subprime mortgage issue needs a light touch to strengthen the relationship between consumers and providers, not a heavy hand of intervention that strangles our economic freedom."
The 362,000-member NTU is a citizen group founded in 1969 to work for lower taxes, less wasteful spending, and accountable government. Note: The study, What Should Government Do about the Subprime Mortgage Market? A Taxpayer's Guide, is available at www.ntu.org. The contents of the study do not entirely or necessarily reflect the views of the National Taxpayers Union.