It is hard to believe, but it looks like the government will soon use the taxpayers’ checkbook again to create a vast market for mortgages with low or no down payments and for overstretched borrowers with blemished credit. As in the period leading to the 2008 financial crisis, these loans will again contribute to a housing bubble, which will feed on government funding and grow to enormous size. When it collapses, housing prices will drop and a financial crisis will ensue. And, once again, the taxpayers will have to bear the costs.
In doing this, Congress is repeating the same policy mistake it made in 1992. Back then, it mandated that Fannie Mae and Freddie Mac compete with the Federal Housing Administration (FHA) for high-risk loans. Unhappily for both their shareholders and the taxpayers, Fannie and Freddie won that battle.
Now the Dodd-Frank Act, which imposed far-reaching new regulation on the financial system after the meltdown, allows the administration to substitute the FHA for Fannie and Freddie as the principal and essentially unlimited buyer of low-quality home mortgages. There is little doubt what will happen then.
Not to worry folk, the new “Debt Commission” is poised to remove the mortgage interest deduction… Then everyone will be equally unable to pay their mortgage because of taxes..I’d bet we won’t have to worry about any kind of bubble very soon except perhaps the bubbles coming to the surface from the drowning housing industry.
Grandmother
Debt Commission indeed. Chris Dodd retired today and stated that the Federal Govt, overrun with cash politics, is broken beyond repair. That is his assessment after 30 years in office. I have no faith in elected officials as people and yet we are not to look too closely at them. We need to work to reduce our debt and secure our borders, but all else is intrigue. The ‘he said’ , ‘he said’, must stop. As citizens we must not let them get us off topic.