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Congressman Tom McClintock

Representing the 4th District of California

The Law of Unintended Consequences

March 3, 2009

House Chamber, Washington D.C.
March 3, 2009

M. Speaker:

 I’d like to offer a word of caution about the law of unintended consequences.

 Last week, this house passed the Administration’s proposal to allow homeowners to force banks to reduce the size of their mortgages and interest rates.

 Millions of families – including my own – now owe more on our mortgages than our homes are worth – yet more than 90 percent of homeowners continue to make our mortgage payments in hopes of better days to come.

 Question: How many of these people who have been faithfully making their mortgage payments will now take advantage of this new law to reduce their mortgage debt by hundreds of thousands of dollars?

 And another question: as these borrowers decide to cash in on this windfall, how many additional banks will fold as the value of these perfectly sound mortgages are crammed down by this new law? 

And a final question: how high will the surviving banks raise their interest rates and down-payment requirements to protect themselves against future governmental interventions?

 I’m afraid that all we will have accomplished is to produce a society with fewer banks able to make loans and fewer homebuyers able to access loans and an additional downward spiral in home values.

 The law of unintended consequences is beyond the Congress’ jurisdiction, and we would do well to heed it.