Ethics Newsline®

Opponents say it creates ‘moral hazard’ by forgiving, rewarding reckless behavior

WASHINGTON
The U.S. Senate, in a rare weekend session, approved a package of legislation designed to prevent thousands of home foreclosures.

The bill, which President Bush has pledged to sign promptly, would give hundreds of thousands of qualified borrowers a chance to refinance with government-backed mortgages. It also will throw a financial lifeline to Fannie Mae and Freddie Mac, the agencies backing almost half of the nation’s home loans, reports the Boston Globe.

But as the New York Times reports, the measure, which was passed by the House earlier in the week, has sparked controversy on a number of fronts, including an ethics dilemma entangled in the bailout.

Opponents of the measure argue that the mortgage rescue rewards unscrupulous and reckless lenders and borrowers, according to the Associated Press.

“This bill has moral hazard written all over it,” Rep. Jeff Flake (R-Ariz.) said during the debate in the House on Wednesday, according to the Times. “We are pretending to chain a monster here and we are, instead, letting that monster loose.”

Some, such as Sen. Jim DeMint (R-SC), argued that the bill represents an unprecedented and counterproductive government intrusion into the housing market, reports National Public Radio.

“No matter what’s wrong with [the bill], most of the members of this Senate are going to come in and vote for it,” DeMint told NPR. “[They're going to] check the box and go home and say they did something for housing. I’m afraid they may compromise the future of America as they do it.”

Sources: New York Times, July 27 — AP, July 27 — NPR, July 27 — Boston Globe, July 26.

For more information, see: Related Newsline Commentary, July 14 — Related Newsline story, July 14 — Related Newsline story, July 7 — Related Newsline story, June 16 — Related Newsline story, June 9.