By Al Lewis
Make a loan, any loan, to any home buyer for any amount.
Sell the loan to Fannie Mae or Freddie Mac so it's the
government's problem if it's never paid back.
This is what helped trigger the 2008 financial collapse. But
last week, Melvin Watt, the new head of the Federal Housing Finance
Agency, which oversees Fannie and Freddie, said he wouldn't reduce
limits on the size of mortgages that these government-owned
mortgage giants guarantee. He also said he would loosen rules that
obligated mortgage lenders to buy back any distressed loans they
sell to Fannie and Freddie.
"Our overriding objective is to ensure that there is broad
liquidity in the housing finance market," he explained in a speech
at the Brookings Institution in Washington. He said his decision
"is motivated by concerns about . . . the health of the current
housing-finance market."
Democrats and Republicans are still fighting about what to do
with Fannie and Freddie, but these agencies still stand behind
two-thirds of all mortgages in the nation's $10 trillion mortgage
market.
Before the financial collapse, they were supposedly private
enterprises. But the government took them over once it was clear
they were headed for bankruptcy. Their bailout cost $190 billion.
Since then, Fannie and Freddie have paid about $200 billion in
dividends to the government -- a profit for taxpayers.
Never mind that their turnarounds came from the same funny-money
finance that reanimated all of America's zombie banks: zero
interest rates and tens of billions of dollars in monthly bond
purchases from the Federal Reserve.
Now, Fannie and Freddie are feeling flush and want to stay in
the game until Congress tells them otherwise. A bill to overhaul
them passed a Senate committee on Thursday -- but it's unlikely to
go much further in an election year.
You see, without Fannie and Freddie backing a lot of loans, the
U.S. economy could slip back into a recession.
The so-called housing-market recovery has already hit a wall.
Experts are content to blame this year's dip in existing-home sales
on the weather. But here's the bigger picture: Home ownership
levels fell to 64.8% in the first quarter, the lowest in 19
years.
For the last half-decade, college graduates have left school
with huge debts and bleak job prospects. Students and graduates owe
more than $1.2 trillion. The last thing many young people need is
mortgage debt on top of student debt.
What economists call "household formation" has nose-dived. The
number of households established in the U.S. has dipped by about
800,000 a year since the 2007-09 recession, according to a paper by
the Federal Reserve Bank of Atlanta, hitting some of the lowest
levels since World War II.
Millions of Americans remain without jobs. Millions more have
found new jobs that pay less. Millions more are retiring as the
baby-boom generation enters its golden age.
Who needs a mortgage? RealtyTrac, a real-estate data provider,
reports that 43% of all homes sold in the first three months of
this year were all-cash deals.
Wealthy investors and giant buyout firms such as Blackstone have
been scooping up all the distressed homes -- so there have been few
deals for average home buyers to be had.
Fannie and Freddie can try to juice the market now, but there
may not be much demand left for home loans.
The story of America's mortgage crisis ends like this: The rich
got richer and the poor will rent from them.
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Al Lewis is a columnist based in Denver. He blogs at
tellittoal.com; his email address is al.lewis@tellittoal.com