Wednesday, July 30, 2008

The State as Mortgage Lender

From the International Herald Tribune:
In a country that holds itself up as a citadel of free enterprise, Washington has morphed from being the lender of last resort into effectively the only resort for home loans for millions of Americans engaged in the largest transactions of their lives.

Before, the government's more modest mission was to make more loans available at lower rates. Now it is to make sure the loans that matter most to middle class Americans are made at all.

The new reality is scorned by libertarians and conservatives, who fear intrusions by the state in the market, and by populists and progressives, who rue a society in which education and housing increasingly rest upon the government's willingness to finance it.

"If you're a socialist, you should be happy," said Michael Lind, a fellow at the New America Foundation, a research institute in Washington. "But you should really wonder whether you want people's ability to pay for housing and college dependent on the motives of people in Washington."

Why is this happening? Much of the private money that once surged into the mortgage industry has fled in a panicked horde, leaving most of the responsibility for financing American homes to the government-sponsored Fannie and Freddie.

Two years ago, when commercial banks were still jostling for fatter slices of the housing market, the share of outstanding mortgages Fannie Mae and Freddie Mac owned and guaranteed dipped below 40 percent, according to an analysis of Federal Reserve data by Moody's By the first three months of this year, Fannie and Freddie were buying more than two-thirds of all new residential mortgages.
Of course, Fannie Mae and Freddie Mac are technically private businesses now, but they are businesses that politicians are inclined to bail out. This implicit backing of the government acts as a subsidy for homeowners.


  1. The US government subsidies homeownerhsip to a degree that is much greater then what is economically sensible.

  2. To give fannie and freddie an 800 billion dollar blank check to write, carry and service questionable debt is a travesty to the US financial system and will only serve to prolong and acerbate the decline in the us housing market and economy as a whole.

  3. How much is your home worth? Well, it all depends where you live.

    The real estate market is still shaking. New data suggests that home prices have hit a new record low. In every new study that comes out, homeowners from Miami, to Las Vegas, Phoenix and Los Angeles, have seen their home value go lower every time.
    Is that disappointing? Of course it is.
    Should we sell? Is not a good time.
    Should we stick to it? Yes, if you can.
    Have we hit bottom? Nobody knows.

    Banks are facing their worst foreclosure crisis.
    Don’t take me wrong, it’s good if you are in the market to buy a home for yourself or if you are an investor, but if you are not, and you own a home, most likely the value of your property is down at least 15 %.

    Why do banks care if you are loosing your home? By having to sell repossessed homes, banks have to literally slash their prices down. It gets very costly for them, after all, they have to pay property taxes, maintenance costs, and whatever utilities that need to be paid, all of this expenses for a house that it’s just sitting there, vacant, and the bank is getting nothing in return.

    The latest study by the S&P/Case-Shiller Home Price Index of 20 cities, revealed the news that for 22 consecutive months home prices dropped. Only from April to May, 2009 the decline was of 0.9 %

  4. I like your titlebar.

    Of course, the state as a lender makes the stae a potential owner.

    A state that forecloses on "private property" creates "state property".

    Dust off your hammers and sickles.

  5. Anyone who manages to get a mortgage at the moment is lucky, with refusals at a new high and many home-owners struggling with repayments. A lot of people are turning to companies that allow you to sell and rent back your home, as it rids them of their mortgage yet allows them to remain in their house as a tenant.