Government intervention in the housing sector is doing more harm than good and is actually hurting recovery instead of helping it, says real estate mogul Sam Zell.
President Barack Obama has proposed expanding government efforts to allow millions of struggling homeowners refinance their mortgages.
The problem with government intervention is that it doesn't allow the market to correct itself and fully recover, Zell says.
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"Rather than let the elements of the business world take care of the problems, we basically stopped the process of creating market clearing," Zell tells CNBC.
"Had we allowed the market to clear without trying to stop reality...we would have a healthy housing market today."
One problem facing the housing sector today is that it's too easy for distressed homeowners to walk away and leave the bank holding the property, Zell says.
"We are the only country in the world where you can borrow money on a house and walk away from it. Everywhere else, all the people in Europe, all the people who borrow money in Brazil, they're all personally liable for 100 percent of the debt. So by virtue of not being personally liable, we've created a giant moral hazard," Zell says.
That has to change.
"Would I change the policy? Absolutely ... I think you have a giant moral hazard that must be eliminated. If you borrow money to buy a house, how you cannot be responsible?"
Experts say Republicans in Congress will kill President Obama's home refinance proposal anyway due to its increased participation of government in the housing sector.
"The president pretty clearly signaled that [the program] would need some kind of congressional action," says Brian Gardner, senior vice president of Washington research at Keefe, Bruyette & Woods, according to U.S. News & World Report.
"To the extent that it does, I think it's D.O.A."
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