In Congress, I serve on the Financial Services Committee, which has jurisdiction over banking, lending, and monetary policy, capital markets, insurance and housing.
So the subprime lending issue, much discussed in recent issues of the Business Journal, falls in our jurisdiction. The committee has already held hearings on the issue, and I am sure there will be more.
There is definitely a feeling among the Democratic majority on the committee that Congress “must do something because there were bad practices and people were hurt.”
I am encouraging my colleagues to take a deep breath and slow down before acting.
First of all, if the delinquency on subprime mortgages is 14%, that means 86% of the people in the market own a home they would not otherwise have without the availability of such loans. Congressional action that would dry up the subprime market would hurt many homebuyers in addition to damaging the already fragile housing market.
Secondly, the market is adjusting quickly. Underwriting and loan guarantees have changed as hedge funds salvage value remaining in the various failures.
Sure, there were some bad practices. But they were less predatory in nature than they were plain old bad underwriting. Making loans to people who shouldn’t have them is not a new idea. It happens every once in a while when lenders chase growth in the market, and guess who loses,the lender.
They are automatically punished for their bad actions because their loans are not paid back. The question before Congress is whether the current level of regulation on mortgage lending is sufficient. Maybe it needs a few tweaks, but that would be sufficient.
Major changes, such as suitability requirements, which could use the nonpayment of a loan to retroactively determine that the lender committed a crime, would be a danger to the housing market.
That is nuts. It would result in no lending to people with less-than-perfect credit. So then how do they buy homes? Perhaps advocates of this proposal would like to see more government loan programs or, even better, more government-owned housing.
Throughout history, whether it was in the Soviet Union or other enclaves of socialism, government intervention in the housing market has abridged freedom and lowered living standards. It is illogical to follow this model.
Rep. John Campbell
R-California, 48th District
