Did Federal Government Housing Policy Hurt the Middle Class?

I don’t think all the blame of the past 7-20 years is entirely on the backs of banks and financial institutions as the US Justice Department feeds on a frenzy to go punish the pit bull that the US Government created and released upon us.

Over the decades, the United State Government, with help from the Federal Reserve, kept interest rates low, offered tax incentives (including mortgage interest deductions, caps on taxes paid on the profit of selling a home; waivers of taxes on 2nd homes, etc), created Fannie Mae, Freddie Mac, and Ginnie Mae; and create the atmosphere to buy homes as investments and not just to live in and/or raise a family.

In 1980, fewer than $10 Billion in loans held by Fannie Mae and Freddie Mac reflecting less than 10% of total mortgage loan and now almost $4.7 Trillion are held by these GSE’s. Since 2008, Fannie-Freddie-Ginnie-FHA-VA (all government mortgage insurers or issuers) had a hand in >95% of new mortgages

From 1980 to today, almost the same percentage (65%) of US households own a home – a virtual flat rate of net increase over 30+ years of federal government involvement.

All that involvement in mortgages an what did we get? (I hear crickets!)

Biggest housing bubble burst in US history; improper economic priorities by tipping scales toward Buyer’s favor to loss sense of control and responsibility to create a mass surge toward “investment” property and not just a place to live (i.e., giving tax advantages, limited recourse by lenders to seek damages); and people with marginal credit ratings were encouraged to apply and got mortgages.

Fannie Mae: Guarantees and purchases loans from mortgage lenders to provide liquidity (i.e., mo $ to lender to loan out).

Freddie Mac: Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets by buying or insuring losses of mortgages from lenders.

Federal Housing Administration (FHA): “FHA”, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals

Ginnie Mae: Ginnie Mae does is guarantee investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Other guarantors or issuers of loans eligible as collateral for Ginnie Mae MBS include the Department of Agriculture’s Rural Development (RD) and the Department of Housing and Urban Development’s Office of Public and Indian Housing (PIH).

Sources: Besides individual websites – Wall Street Journal, 3-6-2014, A17.

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