In Mortgage ‘Asylum,’ Inmates Are in Charge

Published December 29, 2007

Your page-one article “Mortgage-Relief Plan Divides Neighbors” (Dec. 17) reveals the continued mismanagement of the economy by the Federal Reserve and the federal government. Current problems in the housing market are primarily due to the Fed’s policy of pursuing artificially low interest rates, which created a boom. The mistake was compounded by implied Fannie Mae and Freddy Mac government safety nets that encourage risk-taking. This has resulted in a banking industry whose credit standards have slipped irresponsibly.

A boom in home values allowed the Oropeza family to take out an additional $335,000 in mortgage loans, which would have been impossible in a more responsible lending climate. The unsustainable appreciation in home values subsidized a lifestyle that was far beyond what they could afford. Lower interest rates and loose lending policies enticed millions like them to make unwise personal financial decisions.

Freezing interest rates or pursuing taxpayer-funded bailouts will reward those who made irresponsible financial decisions on all levels. Such actions are unfair interferences in the natural market-correction process and will significantly increase global financial risks.

Brian Costin ([email protected]) is assistant director of government relations at The Heartland Institute.