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.