After the $142 billion taxpayer bailout, the White House is now committed to winding down Fannie Mae and Freddie Mac, limit the FHA and urge the revival of a private mortgage market. These positive signs, however, are being undermined by Congress’ push in the opposite direction, tacitly approved of by the Administration.
The FHA’s maximum mortgage limits have been lifted throughout 2013.
Recently a bipartisan Congressional committee has agreed to increase the FHA’s maximum mortgage limits by over $100,000 through the end of 2013. The bill itself is linked to a resolution to fund Congress, making it an almost certainty that it will be passed and become law.
While the National Association of Realtors is all praises for the idea, claiming that it is great for stabilizing the housing market, the truth is that taxpayers will continue to foot the bill, even for extravagant homes.
The FHA is paying the housing lobby, while at the same time it has had to reveal publicly its dire financial situation. The FHA is in such financial turmoil because its reserves have dipped well below its statutory 2% minimum for the third year in a row.
The FHA is notorious for providing completely and explicitly taxpayer-backed mortgage loans to the riskiest of borrowers – first-time, moderate to low-income.
The FHA was hit very hard by the housing collapse, just like Fannie and Freddie. The difference with the FHA is, however, that it has become the major lender for marginal borrowers – substituting for the private subprime lending once encouraged by the political class.
The FHA is also going beyond its role as a lender for those with incomes in the range of low to moderate. It has recently reached a borrower’s credit score that exceeded 700 for the first time in its history. Although this may improve the agency’s future default rate, it will also hurt private competitors.
As always, it seems politicians are being themselves and refusing to make decisions that might upset party members. So the GOP has compromised with the housing lobby by lifting the FHA’s subsidy and hopes that the media doesn’t pick up on the fact.
See also:
Obama’s 2012 Mortgage Refinancing Plan
Reforming Fannie and Freddie
Mortgage Servicers Under Fire, Not Only by the Obama Administration
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Jayson,
I dont think I’ve every seen a politician make a decisions that will make them unpopular.