A Government Role in the Mortgage Market?
Treasury Secretary Timothy F. Geithner, kicking off a half-day conference on housing finance, said Tuesday that it was important for the federal government to continue guaranteeing mortgage loans.
He said continued government support was important “to make sure that Americans can borrow at reasonable interest rates to buy a house even in a downturn.” The absence of such support, Mr. Geithner said, would make future recessions more severe because private lenders would not provide enough money for loans.
These are the kinds of remarks that make me want to tear my hair out: why should government intervene in mortgage markets in any way, shape, or form?
These interventions are just a backdoor way of redistributing income. But even if one believes in such redistribution, distorting mortgage markets, and generating all the moral hazard caused by this approach, is insane.
Some advocates of mortgage policies will claim that homeownership generates beneficial spillovers because property owners take pride in their property and neighborhoods, leading to greater value for everyone. Existing evidence is consistent with this view.
But this evidence does not show that subsidizing homeownerhip generates positive spillovers; in particular, pride in ownership plausibly attaches to houses that people have scrimped and saved for, and in which they have substantial equity; not to houses people know they cannot really afford and in which their equity is miniscule or zero.
So, advocates of redistribution should make their case honestly, not hidden in complicated and costly mortgage policies. The reason they do not, of course, is their fear that voters might reject these subsidies if the true magnitudes were obvious. That’s possible; but that’s democracy.
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happyjuggler0
“property owners take pride in their property and neighborhoods, leading to greater value for everyone”
This is true if they have equity in their home. However, the current/recent downturn in many local housing markets shows that there are plenty of people underwater in their homes who vandalize their homes before they are kicked out. Large numbers of for sale signs are also a blight on neighborhoods and increase the risk of various crimes.
As such, there is a strong case to be made that making it harder to buy a house via larger down payments is the way to go, assuming the quote above regarding improved neighborhoods is the goal. The higher the percentage of equity one has, the less likely one is to walk away from one’s mortgage in a downturn.
freedomfighter
The government has one metric- get re-elected. Liberals have been told by their masters in the blacks-as-victims community that the liberals need to subsidize getting people into homes, since minorities were barred from home ownership for so long.
Like all liberal logic, this is so disastrously flawed that it actually ends up working against getting more minorities into homes in the long run.
Just back off, government, the market will work here- whites voted for Obama in droves, and will let a minority live in their neighborhoods now. The old racists are dying off- time to get rid of the destructive policies of the past, and give minorities a real chance to build a life.
Cliff Nelson
I think a large issue now is bank solvency which, I think, is contrary to your cries that the efforts are an attempt to redistribute wealth to the poor.
Also, I have been meaning to ask if would you be kind enough to explain this “redistribution” that has occurred using a chart with data to demonstrate your point?
Thanks,
Colorado
The redistribution is not just to the poor. The well-to-do also get FHA and Fanny Mae loans. Do we really need the government to redistribute to that group?
And is anyone really getting ahead? If the government subsidizes your mortgage the lower payments make the purchase more desirable. Therefore you pay more for the house off-setting the lower payments. And the driving up of house prices causes problems when you want to trade up. Is this really helping anyone? When the $8000 rebate went off earlier this year, houses in the lower price ranges dropped nearly $8000 here.
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