One of today's headlines in The Washington Post is "Homeownership Mission Vulnerable After Rescue." The worry is that with Fannie and Freddie in trouble, there will be less government support for affordable housing:
But the overarching question is about the future of the companies' founding purpose and long-standing mission to promote homeownership for lower-income families.
Regulators have made clear that they see Fannie Mae and Freddie Mac as essential to the health of the whole mortgage market, not just the lower end. James B. Lockhart III, director of the Federal Housing Finance Agency, barely mentioned affordable housing Sunday as he described an eight-point plan for the companies. Instead, he chose to underscore a broader mission: "the critical importance each company has in supporting the residential mortgage market in this country."
That has affordable-housing advocates wondering whether affordable housing will be seen as an expendable luxury in a drive to restore the two companies to profitability as soon as possible.
"Our concern is that the rhetoric has been about preserving the global financial system," said Mike Shea, executive director of Acorn Housing. "There has not been a whole lot of rhetoric about preserving homeownership."
It is important to distinguish between the cost of housing for low-income families and homeownership for low-income families. Consider that the major subsidy to housing comes in the form of the tax deduction. The higher the marginal tax rate, the greater the value of the subsidy. High marginal-rate taxpayers can get the largest subsidy through homeownership and itemization of their mortgage interest. Low marginal-rate taxpayers can get the largest subsidy not through direct homeownership but through renting their housing from high marginal-rate taxpayers in a competitive housing market. In such a market, at least some of the landlord's tax benefit gets passed through in the form of lower rent.
If it is homeownership by low-income families, rather than low costs of housing, that matters, then perhaps we should begin reform by removing the tax incentives for them to rent. That could involve tax credits, rather than tax deductions, for housing payments, as proposed by the President's tax advisory commission in 2005. The more we can meet these public policy objectives through tax policy, the less compelling will be the arguments for why the government should sponsor entities like Fannie and Freddie.
Less than two months to the
Less than two months to the election, and John McCain and Barack Obama make daily promises and are promoting all sorts of programs and ideas to win over voters. Not only limited to presidential candidates, our representatives and the state and local levels also spend with abandon, thinking nothing of deficit spending and increasing the federal or state debt. The Committee for a Responsible Federal Budget is staging an intervention to end Washington’s addiction to debt and deficit spending. For more information, visit www.usbudgetwatch.org or check out our Facebook page.
Price collapse
A problem has been created by allowing housing prices to bubble. Many states that depend on property taxes are seeing revenue shortfalls. The collapse affects property taxes. So you can focus on not creating a deficit in one place and create an even larger deficit in another place.
Foreclosures hurt financially stable homeowners. A credit shortage at this stage or driving mortgage interests to double digits would unfairly penalize legitimate home buyers and sellers to cover the losses of the loan sharks.
The damage is already done. Going forward we need public financing for housing and loan policy that is reasonable, not an unfair subsidy to mortgage holders and protection of the public from loan sharks and their bait and switch predatory practices.
Financial system collapse
Lehman Brothers just imploded.
Next up is Washington Mutual (WaMu).
We're all going to be paying for this fiasco for the next 20 years or so.
The point about property taxes is a good one; my house is valued about $100K more than I can sell it for today. But municipalities can simply adjust the mill rate (put a higher tax rate on per $1K valuation) to make up a lot of the difference.
The bigger deal for state governments is slowing economy creating shortfalls in revenue. We'll see sales tax hikes (or broadening of sales tax base) in most places in near future.
Affordable housing
Affordable housing availability depends mainly on state and local zoning restrictions. Minimum lot sizes and artificial scarcity for building permits make houses more expensive. This is much more of a problem than slightly higher interest rates.