Fannie Mae — VOICES for REASON

In case anyone believed that the reckless lending and borrowing of the housing boom would never happen again, read this story: “The Return of the $1,000 down mortgage.” Once again, borrowers are putting essentially zero money into the house they buy, encouraging them to buy houses they can’t afford and to walk away if the value of their houses decline.

If you are wondering how the government is letting this happen, you’ve got it backwards; as was the case leading up to the financial crisis, the government is making it happen through its many manipulating tentacles:

This offer does not come from a subprime lender, looking to reel in thousands of unqualified and ill-advised homebuyers, only to slap them with add-ons, fees and variable rates. It is not a teaser or a trick. The advertisement references a program initiated by the National Council of State Housing Agencies and Fannie Mae, the taxpayer-backed, government-sponsored enterprise that buys up mortgages from lending banks.

The pilot program is called “Affordable Advantage,” and it has now been adopted by three states — Massachusetts, Wisconsin and Idaho. (Other states, such as Pennsylvania, California and Colorado, have similar state programs.)…Fannie Mae helped to create Affordable Advantage after the state government agencies tasked with expanding homeownership found they were having trouble doing their job.

The idea that it is the government’s job to “promote homeownership” or create “stimulus” is the root cause of the financial crisis. This idea was carried out by the Federal Reserve, Fannie Mae, and Freddie Mac. Until that idea dies and these entities lose their power to manipulate the economy, the financial carnage will just continue.

Image Source: Wikimedia Commons

In their latest Forbes.com column, Don Watkins and Yaron Brook look at Washington’s longstanding policy of encouraging homeownership — and argue that it is un-American. They write:

For nearly a century it has been the policy of the U.S. government to increase American homeownership. Its efforts include (but aren’t limited to) bouts of easy money from the Fed, the mortgage-interest deduction, the exclusion of capital gains on primary residence sales, direct and indirect subsidies from the Department of Housing and Urban Development, and artificial liquidity pumped into the mortgage market via government sponsored entities Fannie and Freddie.

Policymakers assure us that the next generation of government housing programs will be “carefully designed” (bring on the next five-year plan, Comrade!). But the real question is why the government should be doing anything to promote homeownership.

Read the whole thing.

image: sxc.hu/alexkalina

For years, Barney Frank has been the most prominent cheerleader of Fannie Mae and Freddie Mac–the colossal failures that have cost taxpayers $110 billion to date. Frank has long denied any problems with the government sponsored entities designed to “promote home ownership” by making or guaranteeing loans the free-market wouldn’t.

“These two entities—Fannie Mae and Freddie Mac,” he famously said, “are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Frank also explicitly endorsed the reckless lending that proved Fannie and Freddie’s downfall: “I want to roll the dice a little bit more in this situation towards subsidized housing. . . .”

Last week, Barney Frank changed his mind: “The remedy here is…as I believe this committee will be recommending, abolishing Fannie Mae and Freddie Mac…”

But don’t celebrate just yet. Frank didn’t call for a meaningful abolition–he called for “abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance” (emphasis mine). Read the rest of this entry »