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US-Backed Jumbos: Time To Pull The Plug

The confusion and disarray in Washington’s policy making was starkly revealed last week as some Democrats and housing experts called on the government to continue backing jumbo mortgages, saying that the market is too weak to handle a drop in the size of loan guarantees. From the WSJ:

If Congress doesn’t act, the maximum size of loans that can be guaranteed by Fannie Mae, Freddie Mac and the Federal Housing Administration will drop Oct 1. The new limits vary by location, but will drop to $625,500 in expensive markets such as New York, Los Angeles and Washington from the current $729,750.

Many Democrats, mainly from pricey coastal housing markets, and real-estate lobbying groups want the change to be blocked. But they have failed to gain traction so far. Only a handful of Republicans support maintaining the current levels. Many Republicans see allowing the limits to drop as a way to reduce the U.S. mortgage market’s dependence on government support.

Two things in particular about this hare-brained scheme deserve comment.  The first, of course, is the sheer stinking incongruity of government-assisted mansion buying.  Is there any sane or decent reason why the US government should worry about whether millionaires can have appropriately nice homes?  If people in the market for $800,000-plus homes need and “deserve” federal help, we might as well close the country now.

But the second point about this proposal is the depth of intellectual bankruptcy that it reveals.  If we need to help millionaires buy more stuff like mansions to prevent an economic collapse, why are we talking about raising their taxes?  And if the problem with American society is rising inequality and we need to tax millionaires more stringently to even things out, why are we talking about subsidizing their mortgages?

The government needs to be reducing its profile in the housing market; the housing bubble and subsequent crash would not have happened without Fannie Mae and Freddie Mac to push the feeding frenzy.  Millions of Americans have lost billions in home equity — and the damage has been heaviest among those minority and first-time home-buyer families that Fannie Mae and its Congressional allies claimed they were “helping.”  In any case, there is no conceivable reason for the federal government to subsidize the high end of the housing market.

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  • silverfiddle

    There are myriad examples of government working at cross purposes with itself and its stated goals.

    Reminds me of my poor granny, who we thought was on her deathbed with wild blood pressure fluctuations, no appetite…

    Finally, one doctor looked at that vast array of meds she was taking and determined they were interacting badly with one another, so he took her off of all of them, got her stabilized and put her back on only the few essential ones.

    There’s a lesson in there somewhere for Uncle Sam.

  • ken handler

    lt appears that an 11% reduction in US backed mortgage is a drop in the bucket of enormous number backed by the US by keeping fannie and fredy from bankruptcy. The US cannot do otherwise

  • Ken Moore

    Succinct. Identifying and cutting cross-purposes is a strategy that will work widely, as silverfiddle notes. A lot of family folk send each other cash gifts to buy something nice at Christmas. If I’m going to send you $75 and you mean to send $50, then $25 one way nets it out properly. That’s an amusing thought between kindly-intentioned adults. When laws compete with each other to exact compliance, it’s no laughing matter and mischief follows.

  • Jim.

    Have you ever seen what $500,000 can get you in Sunnyvale, CA? Korean-war vintage, gaps between the walls and roof, 900 square feet if you’re lucky… Hardly a “mansion”.

    But it does put forward a couple of interesting question: if cities are so all-fired “efficient”, why is it that they’re so unbelievably expensive for the people who live there? Urbanists are nothing but hucksters and shills for real estate interests.

    The other interesting question being, of course, why would anyone pay that amount for such a house? The answer being, of course, because they can — because Leftists idiotically believe in throwing more money at a scarcity-caused problem, without that money going directly into expanding supply.

    Capitalism works because when more money is spent on scarce goods, that encourages the enterprising to work to make those goods less scarce. Subsidizing goods without expanding supply is how bubbles form.

  • dnewlin

    krn handler: fannie and freddie ARE bankrupt. This is the least we can do.

  • Jacksonian Libertarian

    Welcome to the TEA Party Mr. Mead, do you take your’s with sugar or lemon or both?
    There’s no fixing the Government Monopoly, the only thing we can do to limit the damage is to limit the size of the monstrosity.

  • jaed

    I assume that the stately Mead manor is in a relatively low-priced housing market? Because where I come from, $800,000 will not buy you a mansion. It will buy you a 3BR/2BA ranch house with a front yard in a pleasant family neighborhood with decent schools (but not the best). Millionaires, unless they’re thrifty millionaire-next-door sorts, do not buy such houses. The millionaires are spending five million or so on a house.

    In a market where the “needs-lots-of-TLC” category is designated “$500,000 or less”, these loan amounts aren’t out of line. Most of the mortgages written there for 10-20% down are necessarily that size.

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