The news has been filled of late with stories of heartbreak in the sub-prime mortgage market and calls have grown louder for the government to do something to alleviate the suffering of those under threat of losing their homes. We are writing to urge you to be careful not to allow this difficult situation to be used as a pretext for increasing the size and intrusiveness of the federal government.
We specifically oppose creating or expanding programs to provide explicit government loan guarantees, allowing government-sponsored enterprises (which enjoy an implicit taxpayer guarantee) to purchase more loans, direct-aid to borrowers, granting bankruptcy judges the power to rewrite mortgage contracts, and new regulatory requirements that go beyond disclosure to determinations of suitability.
Sub-prime mortgage lenders and their customers entered into agreements both understood to contain certain risks. Lenders and holders of mortgage-backed securities knew their risk was the possibility that borrowers may not have the means to make their payments once those payments increased.
Some borrowers chose risky loans and purchased houses they otherwise could not afford in the traditional mortgage market. Others chose these loans as a wealth management tool and to help them achieve financial goals such as starting a business. People are free to speculate as to their future earnings and ability to repay mortgages as well as speculate on the future of housing prices. Government should not step in simply because some people took risks that didn’t work out.
That is not to say there aren’t things government can do. Where fraud occurred, it should be fully prosecuted. And government should reduce barriers that inhibit lenders and borrowers coming together to negotiate terms beneficial to both sides, so lenders are not out money and borrowers do not lose their homes.
We urge you to act deliberately and avoid any temptation to step in with a government bailout that would reward financial imprudence, create a moral hazard, and set a dangerous precedent that encourages irresponsible risk-taking at taxpayer expense. Nor should you intervene to prohibit risk-taking that could give some families greater economic opportunity.
Americans for Prosperity
J. William Lauderback
Executive Vice President
American Conservative Union
Center for Individual Freedom
Council for Citizens Against Government Waste
Americans for Tax Reform
Director of Government Affairs
National Taxpayers Union
Fred L. Smith, Jr.
Competitive Enterprise Institute
Center for Entrepreneurship, Competitive Enterprise Institute
American Legislative Exchange Council
The Club for Growth
President & CEO
Maryland Taxpayers Association, Inc.
National Center for Public Policy Research
Andrew F. Quinlan
Center for Freedom and Prosperity
Americans for the Preservation of Liberty