Dream Of Universal Home Ownership Realized

Jim Angle of Fox News is reporting the joyous news that every taxpayer now owns a house.  Several of them, in fact.  Fannie Mae and Freddie Mac, now wholly-owned extensions of our popular will through the glorious State, are on the hook for over $300 billion in mortgage guarantees.  Ed DeMarco, acting director of the Federal Housing Finance Agency, tells Fox that’s over half the mortgages in the country… and they’re buying the vast majority of the new loans made in the United States.  The next time you’re driving through a residential neighborhood, you should be filled to bursting with pride, because you own a piece of every other house you pass.

A lot of those houses are empty.  You paid $2 billion last year taking care of them.  Why are they sitting there unoccupied?  Because thousands of home foreclosures were processed incorrectly.  People who make their living pushing paper pushed too much of it, too quickly.  Bank employees and contractors have testified in court that they cut corners and violated their own procedures to handle the tsunami of failed mortgages over the last couple of years.  This could lead to questions about the true ownership of property, which could cost banks billions of dollars.  This makes the banks nervous about playing along with the Treasury Department’s foreclosure prevention program, and fills the housing market with a glut of inventory no one could buy if they wanted to.

Why were there so many foreclosures recently?  Because Fannie Mae was pumping out mortgages to people who couldn’t afford to repay them, and pressuring banks to abandon their normal standards for lending money.  This was done in accordance with the ideology of liberal Democrats, who lied furiously to protect Fannie Mae from oversight, right up to the collapse of the “subprime” mortgage market it had distorted.  The normal rules for the calculation of risk were suspended through political imperative.  Banks, in turn, did some rather unscrupulous things to take advantage of the new politicized market.  Everyone involved “made mistakes,” although it remains the official position of the Democrat Party that not one of their politicians bears any responsibility for their actions. 

People have always run into trouble paying their mortgages.  Anyone could suffer a reversal of fortune that makes it hard to make ends meet.  The difference now is that Fannie Mae spent the last decade flooding the market with mortgages that could never be repaid.  They were doomed from the start.

This tidal wave of toilet-paper mortgages produced three especially unfortunate results.  First, it left a huge number of people buried under debt… which opportunistic politicians could use as leverage over them.  Back in August, the Administration floated a trial balloon about ordering the forgiveness of billions in debt from insolvent mortgages, in hopes of staving off the 2010 midterm election bloodbath.  The government is always worried about deflation, and argued that forgiving vast amounts of debt would unlock more consumer money for spending.  The plan died quietly when outraged taxpayers realized it would amount to a subsidy for irresponsible purchases of unaffordable homes.  The temptation to buy votes with antimatter debt dollars remains.

The second effect of the mortgage crisis was damage to the credit market, which runs on a certain amount of faith.  Banks expect loans to be repaid.  Borrowers need to know how much house they can afford.  Granting vast amounts of credit to someone who can’t afford to make the payments is a betrayal of trust.  It does the borrower no favors.  In turn, the credit industry is understandably shy about giving out loans that could be crammed down, through the force of a government that can’t afford to pay for them either.  The modern economy will not survive a critical shortage of credit.

The third effect of this crisis was the misallocation of resources.  Construction companies built a lot of houses to capture those subprime dollars.  Now those houses stand empty, buried under badly processed foreclosure paperwork.  The cost of delayed foreclosures is passed on to the taxpayers.  Peter Wallison of the American Enterprise Institute told Fox, “The taxpayers ought to get ready to suffer some very substantial losses because of Fannie and Freddie.  They’ll never recover the total amount that they are owed, but the longer we do not foreclose, the worse their losses are going to be.”  Universal home ownership, like every other collectivist enterprise, turns out to be horribly expensive, and deeply unsatisfying.