Dueling Punch Bowls: Gov’t Mortgage Guarantees And The Fed Stimulus (Holder Declares War!)

Confounded Interest ^ | 08/21/2013 | Anthony B. Sanders

[whitedog57]

As President Obama and Congress discuss housing finance reform, we have to discuss the government mortgage guarantee. You know, the one that Fannie Mae and Freddie Mac furiously denied, but it turned out that they were wrong.

Since 2008, Fannie Mae, Freddie Mac and the FHA control over 90% of the mortgage market and The Fed has taken unprecedented measures to keep mortgage rates low. Finally, investors are flocking into housing again. Part of the allure is the government mortgage guarantee.

Government loves guarantees (and pseudo-guarantees) in the form of social safety nets. Social security, Medicare and other entitlements (that are kept off-balance sheet) already amount to $70 trillion. And according to economist James Hamilton, Fannie Mae and Freddie Mac’s share of the off-balance sheet liabilities amount to $4.9 trillion. This is the formerly implicit guarantees for Fannie and Freddie that are now explicit.

Hamilton: ”With the federal government today being the sole owner of Fannie and Freddie, it seems appropriate to consider both the direct debt obligations … as well as their outstanding mortgage guarantees [which are now treated] as an off-balance sheet liability.”

So, we want to ADD to the $70 trillion in off-balance sheet liabilities by adding MORE mortgage guarantees? Here is James Hamilton’s charts on GSE liabilities:

Cato_GSE

To be sure, GSE liabilities seem high, but unless house prices drop to zero, Hamilton’s estimate is high. But still, do we want to continue this guarantee fiasco? Remember, the FDIC liabilities, partly to help the housing and mortgage industry, are of enormous size as well.

hamiltontables

And the government mortgage guarantee saved consumers only about 30 basis points on their mortgages. Brent Ambrose, Michael Lacour-little and I estimated the bank lending mortgage versus the Fannie/Freddie conforming loan rate and found it be be 30 basis points. Was this pain and suffering over 30 basis points?????

At a minimum, we need to cut back on the government’s affordable housing goals. And abolish the Community Reinvestment Act (CRA) which was pivotal in the financial crisis of 2008 (according to my coauthor Sumit Agarwal)

How has affordable housing policy (and goals) impacted housing and homeownership? Firstt, after the CRA and the Clinton pushing of CRA (National Homeownership Strategy nhsdream2 until the market broke under the market broke under the strain.

hp10cmt

Homeownership rates? They rose dramatically then exploded.

hor

Let’s see. “Affordable” housing goals helped make housing more expensive and created a bubble in homeownership rates. And not to mention that black and Hispanic homeownership rates (targeted by CRA and the NHS) have plunged.

horatesrace

To quote Attorney General Eric Holder, “Anybody who’s inflicted damage on our financial markets should not be of the belief that they are out of the woods because of the passage of time.” Does that include Presidents Carter and Clinton, Congress and HUD Secretaries Cisneros and Cuomo?

Suffice it to say, Realtors, homebuilders, “affordable” housing advocates and others will burn a trail through Congress pleading/demanding a government mortgage guarantee, despite the havoc it has wreaked.

Oh, and a credit wrap is just another name for an explicit guarantee. I liked the idea initially, until I remember that Congress will pressure Fannie, Freddie and the regulatory body to ease credit .. again.

And taxpayer will be left eating the cost. Or having the government drink their milkshake.

Repeating things that failed over and over again is a mark on insanity. Besides, we already have FDIC deposit insurance, The Federal Reserve and the FHA. How much more guarantees do they want?

twbb

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[whitedog57]

Holder is such a Marxist schmuck like Obama and Warren.

[Vigilanteman]

It has always been libtard policy to force unsustainable mandates on the markets and then declare that capitalism has failed and their further prescriptions are needed once the inevitable chickens come home to roost.

ObaMaoCare was designed to fail for this very purpose. If the GOP RINO Chicken Littles who are afraid to defund it thinks it is bad now, just wait until it fails and the RATs come out with their further policy prescriptions to "cure it": single payer, rationing and the like.

[shove_it]

Now that the Rats have burdened F&F with anti-redlining legislation and demanded no down payment loans to deadbeats who can’t repay them, they’re floating the idea of withdrawing the government guarantees by dumping the whole mess on the private sector. Almost no bank or private lending institution holds the loans they make anymore, they just service them after dumping them on Fannie.