More bad ideas on the economy from Biden--housing

When I first heard this on the radio, I thought it must be a joke.

"As part of the U.S. Federal Housing Finance Agency’s push for more affordable housing, home buyers with good credit scores will be forced to pay additional fees on their mortgages. Starting on May 1, the federally backed mortgage companies Fannie Mae and Freddie Mac will establish new loan-level price adjustments with private banks nationwide. Those additional fees will be used to subsidize home buyers with risky credit scores."

I switched to another station and heard the same story.

"Under a new Biden administration rule, home buyers with good credit will soon be forced to pay higher mortgage rates to subsidize loans issued to higher-risk borrowers."

So I went to the internet, to the "old media," and looked up FHA

"Mortgage industry specialists say homebuyers with credit scores of 680 or higher will pay, for example, about $40 per month more on a home loan of $400,000. Homebuyers who make down payments of 15% to 20% will get socked with the largest fees."

Am I the only one who remembers the 2007-2008 and the Fannie and Fred complicity in the housing bubble after millions who couldn't handle a mortgage plus all the costs and responsibilities of home ownership helped the economy go belly up and hurt the poor and middle class even more? The government wants to punish people who pay their bills and save to buy a home? Yike! All government bad ideas come from academe. I wonder which failed Socialist professor came up with this one.

I am so non-Bidenary. He's absolutely the worst of the worst presidents we've ever had. He's beginning to make Barack Obama look good. Yes, he's that bad.

Looking back at the origins of FHA

The right margin of this interesting article from Woman’s Day about an early FHA backed mortgage is missing because my grandmother who clipped it was interested in the quilt pattern on the other side (Star and Ring). From the clothing and hair styles, I’d place it about 1948 because the husband isn’t in uniform and those drapes look familiar.

FHA has had an interesting history. On the one hand, it allowed generations of Americans to own their own homes, but the unintended consequences are it contributed mightily to our current recession brought on by the collapse of the housing market.

It was created in 1934 during the Great Depression because housing loan periods used to be much shorter with a final balloon payment, and when the economy failed, many people lost their homes. But there were also some fairly stiff standards on the quality of the home, a modest down payment and the ability of the buyers to pay. After 25 years or so, politicians decided this was unfair to African Americans who were being left behind in the decaying inner cities as whites moved out to newer housing stock (like in the picture of the Knudsen family home near Washington D.C.).

So that’s how we got all this “creative financing” with the seller, instead of the buyer, providing the down payment, but not really, because it actually came from a non-profit organization like a church or community group (think ACORN) which got the money from the government. In 2000, these types of mortgages made up less than 2% of FHA insured mortgages. By 2007, that percentage jumped to 35%. And I guess you know the rest of the story.

“The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial.” WSJ, Aug. 11, 2009

To be fair, conventional loans during the same time period were also requiring nothing down, so there’s plenty of blame to go around when mortgage lenders, non-profits dependent on government grants, home flippers with venture capital and politicians collude.

But this is just a reminder that more government interference in the housing market is not necessarily a good thing. The current housing credit of $8,000 for “first time buyers” (and there’s tremendous fraud in this) is costing us taxpayers something like $48,000 for each one.

Incidentally, Dorothy Ducas, the author of the Woman's Day article had a very interesting career and would make an interesting topic for a thesis if it hasn't been done.

The housing mess has a long history

We've all seen the pressure to lower standards and make homeowners of people who can't save the downpayment, can't pay the mortgage, can't meet the minimum standards, but I was unaware how far back government interference in the housing market went--back to the early 1920s with Herbert Hoover when he was Secretary of Commerce. Or even 1913, if you figure the home mortgage deduction. And I knew about rent controls creating an artificial "housing shortage" after WWII. I knew what had been required of us even with our first home purchased in 1962, but we never used FHA or VA, and sort of assumed that's the way it was until the 70s or 80s. Guess not. There's a lot I didn't know about how housing became a political football for both parties and invited crime and corruption to flourish. Catch up on the history beginning with Hoover, and follow it all the way up to now. See Obsessive Housing Disorder.

"The next stop on the road to 2008 was a fateful campaign to lower lending criteria, which, the housing advocates argued, were racist and had to change. The campaign began in 1986, when the Association of Community Organizations for Reform Now (Acorn) threatened to oppose an acquisition by a southern bank, Louisiana Bancshares, until it agreed to new “flexible credit and underwriting standards” for minority borrowers—for example, counting public assistance and food stamps as income. The next year, Acorn led a coalition of advocacy groups calling for industry-wide changes in lending standards. Among the demanded reforms were the easing of minimum down-payment requirements and of the requirement that borrowers have enough cash at a closing to cover two to three months of mortgage payments (research had shown that lack of money in hand was a big reason some mortgages failed quickly).

The advocates also attacked Fannie Mae, the giant quasi-government agency that bought loans from banks in order to allow them to make new loans. Its underwriters were “strictly by-the-book interpreters” of lending standards and turned down purchases of unconventional loans, charged Acorn. The pressure eventually paid off. In 1992, Congress passed legislation requiring Fannie Mae and the similar Freddie Mac to devote 30 percent of their loan purchases to mortgages for low- and moderate-income borrowers."

So we're doing more of the same, trying to refinance these failed homeowners, offering rock bottom rates, wondering why it isn't working?

"As Harvard economist and City Journal contributing editor Edward Glaeser has observed, mortgage lenders have finally “recovered their sanity”—only to have government dangling subsidized low interest rates and tax credits in front of them and their potential customers all over again. Behind these efforts is a fundamental misconception among politicians that housing drives the American economy and therefore demands subsidy at virtually any cost."

The author points out the damage the home mortgage deduction has done, as well as other government subsidies, regulations and programs. Good article. And Obama owes ACORN big time, so we're in for more of the same on the road to "recovery." Go read it.