Fed meddling may do more harm in foreclosure mess

Editorial

Most of what Congress does is ill-advised. But when Congress is in a hurry to appear especially active and responsive to a perceived crisis, it is likely to go beyond ill-advised to downright boneheaded.

It is becoming increasingly obvious that several aspects of the bill passed in response to the decline in housing prices and the increase in foreclosures is a clear example of this phenomenon.

Tucked into the so-called housing bill passed earlier this year was a $4 billion provision to give local governments money to buy, repair and resell homes in foreclosure. The idea was this would not only refurbish and improve homes that tend to bring the rest of neighborhoods down with their foreclosure signs and air of abandonment, but would give governments another way to provide more affordable housing.

Nice theory, but they didn’t even have hearings to get an idea of whether it was feasible or not.

The venerable community activist organization, Association of Community Organization for Reform Now (ACORN), pushed for the idea of rustling up “free” federal money for cities and counties. Its support was not surprising since the concept is for cities to contract with private nonprofit groups — like ACORN — to make needed repairs and then sell or rent them. The nonprofits, of course, would collect fees for their services.

The most obvious objection to this provision is that it would put local governments into the real estate business, in direct competition with private real estate professionals and lending institutions. This can only distort further a market already distorted by government policies like low interest rates and pressure from community organizing groups to make more loans to marginal would-be homebuyers, which was a big contributor to the subprime crisis in the first place.

There are other problems, as noted by a Los Angeles Times story based on contact with housing officials in counties with high foreclosure rates.

One is that most places simply don’t have housing agencies with people who have the training to do such work. The other is that places with high foreclosure rates already have reasonable supplies of (relatively) affordable housing — which is becoming more affordable all the time as prices decline.

Finally, injecting government into the picture as an active buyer is likely to push right out of the market current renters who have been waiting for prices to decline enough that they can afford to buy — presumably the kinds of people this provision is intended to help.

Legislators are addicted to the illusion that you can solve almost any problem simply by throwing some tax money and a bundle of good intentions at it.

And we know what road is paved with good intentions.