The Housing Gang Is Getting Back Together For Another Bust
Fan and Fred will buy mortgages up to $1 million, repeating the mistakes that led to the 2008 crash.
By Peter J. Wallison
Wall Street Journal, 11-25-21 – Excerpts:
The Federal Housing Finance Agency’s headquarters in Washington, March 20, 2019.
When the Supreme Court ruled last year that President Trump’s director of the Federal Housing Finance Agency could be removed without cause, many of us who follow housing policy knew what was coming. The next day, the Biden administration replaced the FHFA director, Mark Calabria, with a temporary appointment. Get ready for another housing boom—and bust.
FHFA is the regulator of the two government-backed housing lenders Fannie Mae and Freddie Mac. Mr. Calabria had been working to spin off Fannie and Freddie, hoping to reduce the harm they could do to the economy. But the Biden administration’s replacement immediately reversed course. “There is a widespread lack of affordable housing and access to credit, especially in communities of color,” said Acting Director Sandra Thompson. “It is FHFA’s duty through our regulated entities to ensure that all Americans have equal access to safe, decent, and affordable housing.”
This was no surprise. In an earlier pursuit of affordable housing, begun during the Clinton administration, Fannie and Freddie had brought down the U.S. housing market by reducing down payments and loosening underwriting standards.
By June 2008, the two government-backed housing lenders had acquired 16.5 million subprime or otherwise risky mortgages, with a principal amount of $2.5 trillion, and created an unprecedented housing bubble. When that bubble burst, it caused the 2008 financial crisis, the worst since the Great Depression.
With a Democratic president now in charge, it seems clear that the GSEs will once again be deployed—as they were before 2008—as instruments of the government’s efforts to increase affordable housing.
But this time there’s a more ominous twist. This newspaper has reported that the GSEs will also intervene in a market that doesn’t need any help—homes priced up to $1 million. The problem the administration sees is that housing and rental prices are too high. The fact that the administration’s own policies have caused an inflationary trend in housing along with food, energy and gasoline, among others, is no deterrent……
But the government’s lower underwriting standards drive down standards for private lenders, too. Banks and other mortgage lenders—if they want to stay in the business—have to offer their mortgages on similar terms. People who own homes then dive into the market to take advantage of the low down payments, and housing prices rise even faster. This encourages cash-out mortgages, in which homeowners reduce the equity in their homes, sometimes to buy a boat.
The process goes on for years until prices are so high that sales growth falls and homeowners can’t sell their homes to pay off their mortgages. Housing prices then collapse, mortgages go unpaid. Banks, other lenders, and even Fannie and Freddie incur losses and another financial crisis begins.
Americans would know all of this if Democrats in Congress, the media, and the Obama administration had not blamed the 2008 crisis on insufficient regulation. Instead of fixing housing finance, and privatizing or eliminating Fannie and Freddie, Democrats gave us the Dodd-Frank Act and a more intrusive government. Those who refused to acknowledge the true cause of the 2008 financial crisis are now on the way to repeating it.
Mr. Wallison is a senior fellow emeritus at the American Enterprise Institute and author of “Hidden In Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again.”
__________________________________________
“Government is not the solution. Government is the problem.” – President Ronald Reagan, Inaugural Address, January 20, 1981
Rather than re-instituting failed policies, that continually ‘grow government,’ America needs policies that will reduce our government’s footprint, and scale back dependence on government largess, particularly when that generosity in bestowing money targets already wealthy Americans.
America doesn’t need another round of GSEs underwriting mountains of risky debt. It needs a plan that will improve the financial wherewithal of American families, and raise the quality of debt that flows within the structure of a free market economy.
The Leviticus 25 Plan is a dynamic economic initiative providing direct liquidity benefits for American families, while at the same time scaling back the role of government in managing and controlling the affairs of citizens. It is a comprehensive plan with long-term economic and social benefits for citizens and government.
The inspiration for this plan is based upon Biblical principles set forth in the Book of Leviticus, principles tendering direct economic liberties to the people.
The Leviticus 25 Plan – An Economic Acceleration Plan for America
$90,000 per U.S. citizen – Leviticus 25 Plan 2022 (3894 downloads)