Thursday, October 01, 2009

More mortgages for financially-questionable borrowers

From The Wall Street Journal, via Cafe Hayek:
The Obama administration is close to committing as much as $35 billion to help beleaguered state and local housing agencies continue to provide mortgages to low- and moderate-income families, according to administration officials.

The move would further cement the government's role in propping up the housing market even as some lawmakers push to curb spending at a time of rising debt.


  1. Agency loans are misguided. They hurt the very people that they are supposedly intended to help.

    The price of a house is dictated almost solely by the amount that the pool of potential buyers can afford on a monthly basis.

    By providing artificially-low interest rates, agencies allow sellers to demand a larger principle than they could otherwise. The reason is that a large principle at a low interest rate demands the same monthly payment as a small principle at a high interest rate. Therefore, a buyer will be paying the same monthly expense no matter what the interest rate is.

    The material difference is not in the monthly expense, but in the amount of the principle. Since agency loans are made at low (subsidized) interest rates, they drive up the amount of the principle. Therefore, although buyers will be paying the same monthly expense, they will have less opportunity to pay the loan off early. It is simply because extra payments against a low interest/high principle loan are proportionately less effective than extra payments against a high interest/low principle loan.

    If this does not help the buyers, who does it help? The lenders, of course! They get to have debt slaves for life!

    Moreover, the federal government lacks the authority to appropriate these funds for this purpose, but nobody ever seems to question that authority. Sad.

    "I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents."
    -- James Madison, 4 Annals of congress 179 (1794)

  2. meddle
    –verb (used without object), -dled, -dling. to involve oneself in a matter without right or invitation; interfere officiously and unwantedly.

  3. for those of you who feel bad about not seeing the bottom coming into view, try this site out:

    This is a blog about the Inland Empire - if there is anywhere in the US that is the EPICENTER of the housing bust, the IE is it. It was hit so bad it would make PWC look like Arlington in comparison.

    Talk about delusional - despite the historic, massive, 50% or more price correction it took - as of early this spring, there were a bunch of IE permadoomers screaming that real estate in the IE had YET ANOTHER 30% DOWN TO GO!!!

    So dont feel bad if you missed the bottom coming into view or thought your pet area still had a huge correction ahead of it. Even in the worst hit area in the country, the prevailing blog consensus seems to be alwyas, we have a long ways to go...

  4. Sucks to be middle class in the DC area. You dont make enough to afford a home, yet you make too much to be able to get free deals too.

  5. To Anon from 6:41 PM: have you heard of cognitive dissonance? You calling the bottom now is exactly as premature as somebody else calling 30% more to go. If you are going to make predictions yourself, you should refrain from criticizing others for doing the same.

  6. Let's spend more money on people who don't/won't pay. How about rewarding the people who do pay their mortgages and have taken on the physical responsability.