published Thursday, January 5th, 2012

Federal backing of big mortgages threatens taxpayers — again

Can you think of a single good reason why the federal government should require U.S. taxpayers to guarantee home loans of up to nearly $730,000?

A few months ago, the maximum loan amount that government-run mortgage giants Fannie Mae and Freddie Mac could back was reduced to about $626,000.

Even that was too high. But in a misguided attempt to prop up the anemic housing market, Congress unwisely voted recently to increase the maximum loan amount that the federal government will guarantee against default to $729,750.

That means you, the taxpayer, are on the hook if someone takes out such a large home loan and then fails to repay it!

Do you think that's good economics -- much less fair.

Can the federal government have forgotten that it helped bring about the housing market collapse in the first place when it pressured financial institutions to give home loans to people with shaky credit -- and then placed on taxpayers the risk if those borrowers defaulted?

Has Washington not seen the pain that millions of foreclosures have caused, both to individual families and to our economy as a whole over the past few years?

Shouldn't that track record of failed federal meddling in the housing market be a warning against still more meddling?

It should be but apparently it isn't.

Federal intervention in the housing market has proved disastrous. It is a sign of remarkable irresponsibility that Washington sees even more intervention as a solution to the problems created by its earlier interference.

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Exactly what's the income f people buying those homes with shaky credit?

And how much lobbying did the banks do to get that coverage?

By the way, speaking of painful foreclosures, try the fraudulent ones, that the banks still don't want to admit. Can we get some more federal intervention on that?

January 5, 2012 at 12:12 a.m.
nucanuck said...

Backing mortages with public tax money prevents foreclosures.

Mounting foreclosures means falling house prices which means diminished bank assets which means insolvent banks which means big losses for bank bond and stock holders. Now we can't have that, can we? No no no! We must protect bond and stock holders, because if we don't, they will lose their money.

Save the 1% from losses!

January 5, 2012 at 12:39 a.m.
fairmon said...


Surely you know the 1% are not the only stock and bond holders. I am in the 53% and depend on stock dividends and bond interest to supplement my income. However, I agree the federal government nor any other government should be in the loan guarantee business in any way for any reason. The government has no business requiring me to pay more taxes than someone with the same income reduces theirs because they mortgaged a house, how is that fair? They have no business having those with the same income pay different rates with the tax code categories of single, married, filing jointly, married filing separately, head of household. People make choices and get punished or rewarded by the government based on the bureaucrats opinion of what is good and what is less good? All deductions should be eliminated and each pay the published rate on their income. Earned income credit is welfare hidden in the tax code. If welfare is needed and appropriate then call it what it is and get it out of the tax system.

January 5, 2012 at 1:48 a.m.
conservative said...

I agree with every concise and clearly stated sentence. Did you ever notice that Conservatives are not ambiguous and rambling when they write?

If the Demoncrats get control of Congress again, the housing market will collapse again. They will once again pressure lenders to grant loans to people with low income and even lower credit. A guarantee to default backed by a guarantee that others will pay for the default. When will they ever learn? When will they ever learn?

January 5, 2012 at 9:16 a.m.
nucanuck said...

Yes Harp, we both know that "the 1%" is a symbolic number representing the unhealthy disparity that has evolved through tax code and subsidy manipulation, not through hard work by the few.

And yes, we agree that the tax code is hopelessly unfair in it's present form. Maybe the intensifying collapse will force a complete overhaul...we can hope.

BTW, if you are the 53%, you are barely making ends meet, if at all. That doesn't square well with someone with a substantial investment portfolio of stocks and bonds. (In this environment, you might want to consider hard assets over paper assets...just saying.)

January 5, 2012 at 10:04 a.m.

harp3339: It seems you want to eliminate tax incentives. However these come not simply from the bureaucrats, but from the elected legislatures who may be following reports from the bureaucrats, but are also answering to the public who elected them.

I don't think you're going to change tax policy though, as it is a way for the government to act in a way to encourage individual actions without the compulsion of force. If you don't like it, you'd really have to rework the philosophy of government. A wider discussion than we'll find here.

However, I'd still like my questions answered.

January 5, 2012 at 11:19 a.m.
fairmon said...

happywithnewbulbs said... harp3339: It seems you want to eliminate tax incentives. However these come not simply from the bureaucrats, but from the elected legislatures who may be following reports from the bureaucrats, but are also answering to the public who elected them.

I have no illusion of seeing any changes to a complex 4ft high, thousands of pages book of tax codes until the country hits the rapidly approaching financial wall. You are right those incentives, deductions, reductions, grants, subsidies, ear marks and other legislative initiatives are all tools of manipulation used by those fine legislatures to pick winners and losers and as voter and special interest vote pandering. Both parties are equally guilty. The federal government is like a pimp with the states and local governments as their stable of prostitutes.

January 5, 2012 at 4:31 p.m.

This is why I don't like it when people quote just a bit of what I have to say, you missed the important paragraph which was not the section you quoted, but the next one.

And it's not just the federal government. It is state and local, and believe it or not, international as well. Yes, foreign governments do the same thing. It's a widespread practice.

You want to change that? You'll have to recognize what it is. And no, the size of the code doesn't matter. It could be done on one page and be abusive as well. The more you focus on details like that, the more you don't pay attention to what matters.

January 5, 2012 at 6:41 p.m.
fairmon said...

Enlighten me about what matters. Any system is subject to abuse but a simple post card filing system with taxes paid without exceptions would take the legislatures out of the equation and enable the IRS to be very effective. In fact people selecting a candidate may start understanding how they are being duped by their very own political choice.

Your everybody does it statement reminds me of when my kids would say well everybody else is going or doing it. Everybody don't do it and if they were that does not make it OK or justify doing it.

January 5, 2012 at 8:35 p.m.

What matters is the philosophy of government, in this specific instance, the encouragement of policy through tax incentives.

But you are confused about my intent in pointing it as being a world-wide practice is mistaken, as I am not trying to justify anything, I am pointing out the scope of the problem. You wish to make a change to a fundamental practice in government. I have been refraining from taking a position for or against your idea, I merely wish you to be aware that what you are suggesting is something that will require a change to the philosophy of government.

That may be an interesting discussion, but that's too large a problem to handle here. Sorry, but this forum just isn't meant for that kind of thing. I'd rather get some answers to my questions.

For your concerns, I'll suggest trying another discussion forum.

January 5, 2012 at 10:57 p.m.
morganw said...

With real wages stagnant and employment numbers still in the basement, that limits the pool of buyers. Sellers sit and complain about “lack of demand” but they fail to add the second part of the equation: “lack of demand at current pricing.” When prices drop to where buyers who are in the correct financial position to buy can afford the houses, then the buyers will be there. There is no lack of demand for housing, there is a lack of qualified buyers who are able to service the debt on loan with no credit at current pricing. The pricing is the only link in the chain with any give, which is exactly what you are seeing in the market.

February 15, 2012 at 7:48 a.m.
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