Our federal elected officials have proven once again they are incapable of effectively analyzing the needs of our country and addressing them. We are about to get the 1 - 2 combo punch from recent changes to mortgage rules and an act the Biden administration has been working on since July of 2021. These rules and policies directly support an underground push to create a more federally socialized system. They also further degrade the little hope that may have existed that the government wants responsible and self-sustaining citizens. Finally, like so many other policies, completely disregard the power restrictions and responsibilities granted to our federal government by the constitution. Is it a surprise, not really. But more than ever we are seeing socialist policies just like this being introduced and ultimately passed. The ideas brought forward will not only undermine the principles of our housing and financial systems, but will also set us up for another crisis in the making. At the end of the day when the system collapses in on itself, capitalism will be blamed and yet more egregious socialism minded policy will be introduced as the save all solution.
The two major players in the mortgage and housing policy changes to come are the Federal Housing Finance Agency (FHFA) and the current Biden administration, more specifically Maxine Waters. An interesting point regarding the creation of this new policy is that the FHFA is not bound to the same methods and procedures as the federal government. The FHFA has put into effect their Fair Lending, Fair Housing, and Equitable Housing Finance Plans. In effect, what these plans do is penalize responsible borrowers to assist irresponsible borrowers that are trying to purchase a home. Reading through a few policy and rule analyst reporting services and going through the plan myself (though it is 68 pages of nonsense) the plan will implement the following. Starting May 1st, if you apply for a mortgage for a house valued at or above $400,000 and have a credit score of 680 or greater, your mortgage will include additional fees and taxes to support funds and policy to assist borrowers with low credit scores and minimal down payments in purchasing a house.
Simultaneously, the federal government is actively pushing forward the H.R.4495 Down Payment Toward Equity Act of 2021, headed by Maxine Waters. This act aims to provide funding to the same individuals that would receive the assistance the Fair Lending, Fair Housing, and Equitable Housing Finance Plan supports. This act will provide one time assistance up to $25,000 to support the borrower's down payment, closing costs, and/or costs associated with reducing the borrower's overall interest rate. It doesn't take a loan officer and finance degree to figure out what this means. Obviously the more money that is included in the initial purchase of a home will always lower the interest rate, therefore there is no reason to say “up to”. As soon as a borrower is approved as a recipient of the funding they will immediately be granted the entire sum of 25k on the reason that it lowers the interest rate.
From an economic perspective, this is terrible policy for many reasons. This undermines the foundation of how finance functions and the mortgage/housing sector. The government is incentivizing unhealthy borrowing at the cost of disincentivizing healthy borrowing. In simple terms, the interest rate you receive when you create a loan is a representation of the risk that the borrower will not repay. The higher the risk of default, the higher interest rate you receive as the loan creator. The government has created policy to incentivize those who are high risk/high likelihood of defaulting to take on mortgages. This obscures the true risk lenders are taking when they give someone a mortgage and will create a second housing crisis. In 2008 the government enacted policy that effectively was introductory “pay what you can” mortgages. Through programs like interest only and introductory rate mortgages, there was a very large portion of the population that suddenly “could afford” a house on paper, but not in reality. Government policy obscured their true capability to afford a mortgage, and once the government assisted portion expired the system collapsed as all those that could not maintain a mortgage were exposed. This program will dump massive unqualified demand into the market as there will be a large portion of the population that truly cannot afford a mortgage but are now capable of buying a house.
This will be done while, as stated, simultaneously socializing the mortgage system. Instead of creating government housing for all, they are redistributing money through new mortgage rules. Like effectively any other socialized system, it will not work. It will not work because the government has no capability to recognize how their policy will affect people's behavior. They act as if the contributors of the policy, those paying the fees and taxes will just pay them at the same exact levels with no push back. What they don't recognize is that the individuals determined capable of paying will change the way they pay to minimize their involuntary contribution. They will pay massive down payments and get 15 year mortgages instead of 30 and pay double payments on top of that. At the end of the day they will not pay into the system what the government is assuming they will. At the same time, they assume that they know how many assistance users there will be, when in reality there will be way more. The government completes zero moral hazard evaluation when they create programs like this. Its mind blowing how they believe that there will be little to no people who, fraudulently or legally through playing the rules, will take complete advantage of this. They assume that the current state of the socio-economic housing and mortgage system will act the same exact way, when it wont. Every time they do something like this there are always less contributors and more users than they estimate. The first housing crash, cash for clunkers, pandemic business funding, and the list goes on.
Our elected leaders fail to govern in a way that has the true interest of the people and our country in mind, and certainly fail to stay within the restrictions spelled out by the constitution. This is another prime example as to how the Federal government overreaches their power, our country is slowly becoming more and more socialized, and irresponsibility is incentivized. This will contribute to our already wildly out of control inflation problem, it will wreck the housing sector, and the officials we have elected will stand tall with a smile knowing it's this type of policy that will get them re-elected. It's this type of policy that created the problems that they think more policy like this will resolve. If the government truly wanted to open up mortgage access to more people they would get out of the game all together. They would allow the efficiencies of free market capitalism and the strength of responsible and connected communities ensure that everyone has a home. If that were to ever be the case, the people would realize how much they don't need the government and all the career politicians' money and lifestyles will be at risk.
Kommentare