Spending public money to shore up real estate prices won't make housing more affordable
The Senate bill hashed out Wednesday, in rare bipartisan haste, typifies Black's frustration. In its current form, the bill would provide $10 billion in tax-exempt bonds to local governments and housing agencies so that they can refinance sub-prime loans. In other words, public dollars would be used to reduce the amount of money troubled borrowers owe on their mortgages.

By Paul Thornton
April 3, 2008

Congress' election-year scramble to do something -- something -- about the housing crisis reminds me of an observation that comedian Lewis Black made way back in the pre-bubble days of 2002: "The only thing worse than a Democrat or a Republican is when these two ... work together."

The Senate bill hashed out Wednesday, in rare bipartisan haste, typifies Black's frustration. In its current form, the bill would provide $10 billion in tax-exempt bonds to local governments and housing agencies so that they can refinance sub-prime loans. In other words, public dollars would be used to reduce the amount of money troubled borrowers owe on their mortgages.

But what really raised my eyebrows was the following nugget in The Times’ April 2 article on the Senate's proposal -- I'll explain why in a bit. From The Times:

Democrats also want the bill to include $4 billion for local governments to buy and renovate abandoned properties, a provision that could benefit California, which has been hard hit by foreclosures. But that idea is opposed by the Bush administration, which has called it a "bailout to lenders and speculators."

As expected, the $4 billion in grants to local governments and agencies (along with the $10 billion in bonds) ended up in the deal that made to the Senate floor Wednesday night. So why is a seemingly ineffectual amount so intriguing? Because local governments and housing agencies would use much of that $4 billion to convert foreclosed and abandoned homes into affordable housing, and in the process benefit both banks (by buying the languishing properties) and, ostensibly, low-wage renters who wouldn't otherwise be able to buy.

Helping bankers and the poor? Eureka!

Ali Solis -- vice president for public policy at Enterprise Community Partners, a national affordable-housing advocacy group -- concedes that banks will benefit by being able to get rid of distressed properties. But communities blighted by foreclosures stand to be the big winners, she says. Her group estimates that spending $4 billion would yield $10 billion in economic activity, restore local governments' lost property taxes and, of course, create a greater supply of affordable housing. Refurbish abandoned homes and sell or rent them for a reasonable price, Solis says, and the ripple effects across neighborhoods hit hardest by foreclosures will be vast.

But as Beacon Economics founder and recent Dust-Up alumnus Christopher Thornberg points out, no one who's interested in owning affordable property (including government agencies) should buy anything right now. Like many observers, apparently including Federal Reserve Chairman Ben Bernanke and the majority of Americans, Thornberg believes that the market still has plenty of value to give back. He estimates that prices will take about another year or so to bottom out, and until that happens, the $4 billion for abandoned or foreclosed properties would mostly benefit banks, not the agencies that will own homes that are declining in value.

Personally, I'm not too keen on a government spending public money with one hand to build affordable housing while at the same time spending billions to rescue homeowners whose properties are, well, decreasing in value. You could say that lawmakers tend to oppose affordable housing only when it's the market doing the work.

In the end, none of this could matter -- President Bush has already announced his opposition to the $4 billion fund. But if this proposal makes it past the president's desk, there's no use arguing over the merits and L.A.'s housing agencies and charities should go for every dime they can get. The FAME Assistance Corp. -- profiled in a March 21 Times editorial -- wants to raise $50 million to buy repossessed properties and failing mortgages in South L.A. If the feds end up dolling out the $4 billion, Godspeed to FAME, Enterprise and other local groups in their work.

Afterward, Congress ought to get out of the way of market forces and let home prices drop -- and yes, that does mean more foreclosures. For those of us who don't qualify for government assistance, it's our only shot at affordable housing.

Paul Thornton is an assistant articles editor for The Times' opinion pages. Respond at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .
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