This post is not meant to be a fair rendering of the recent housing bill. It is meant to be a rendering of its faults. Part of the difficulty here is the effort that would go into reading page-by-page the whole document. My guess is relatively few legislators read the full document, and even staffers would have had a hard time making their way through it.
Now for “unbiased” renderings, I offer you:
The basic rendering of the bill revolves around the following:
- Help to Fannie Mae and Freddie Mac from the Treasury if they need it. (Together with a supposedly stronger regulator)
- Refinancing help for homeowners under stress from the FHA.
- Grants for municipalities to buy abandoned properties.
- Housing tax breaks, including a credit to first time buyers.
- Money for pre-foreclosure counseling and legal services.
- Some profits from Fannie and Freddie will build affordable rental housing. (They already do this…)
Unfortunately, our dear government has a tendency to give with the right hand, and take with the left.
- The bill eliminates down payment assistance programs, which is a good thing because those that get the assistance default more. They don’t have the requisite maturity to own homes, with help, or without it. (Also here.) But it cuts down on housing demand in the short run.
- The effective mortgage rate from the FHA for refinancing will be high, around 8%. That won’t help many people.
- The tax credits are no interest loans which have to be paid back over the earlier of 15 years, and when the house is sold. That’s worth 10-20% of the nominal value.
- The GSEs get crisis funding, but also get their wings clipped.
Beyond that, the hybrid nature of the GSEs is retained, which is a source of some of the troubles. Mixed economic motives tend to lead to irrational decisionmaking, which implies credit losses.
Finally, I will close with the idea that condemnation and destruction of buildings is a lousy strategy. It is lousy, because it would be better to allow for bidding on the part of private entities to use the building and space. Why drop the value to zero, when you can take the valuable property, and put it to its best alternative use?
In summary, this bill will cost a lot less than its sticker price advertised to the American people. There is lots of show, and less go. Personally, that makes me thankful, because the budget can’t bear with aggressive programs that cost a lot. It really looks like the Republicans won on this one, and that leaves me puzzled, because the Democrats should have had the upper hand.