Let’s Build a New Housing Bubble Together

January/14/2012 16:14PM
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Chris Dodd is gone and Barney Frank is retiring. Who will replace them to once again push bad ideas to the extreme, and create the next housing market debacle?

If I told you someone wrote a letter to Congress with the following recommendations, would you believe me? 1. Let’s give bridge loans to jobless borrowers 2. Let’s have more government backed refinances on homes underwater 3. Hell, let’s even reduce principal for underwater loans 4. Let’s put Freddie and Fannie in the home rental business.

Yes, New York Fed president, William Dudley made those recommendations. And, Fed Chairman Ben Bernanke included them in his 26-page paper called a “framework” for fixing the housing mess. Of course, it would happen in an election year when incumbents need a boost in the dismal housing statistics.

This is even worse than a Democratic Representative and a Democratic Senator providing cover for Freddie and Fannie for years to allow billions to be lost in insuring mortgages that never should have been made. This is coming from the Fed.

Where does the Fed come off recommending taxpayers increase the $142 billion already lost through Freddie and Fannie by compounding the same mistakes that created the original losses? And, put the government in the home rental business. Won’t that be pretty to watch? When the first 1,000 houses rented are totally trashed with no rent paid for a year, will it stop?

The only man stopping this is Edward DeMarco, the regulator of Freddie and Fannie, who steadfastly refuses to approve any more high-risk “fix the housing crisis” patches, if their failure might add to the Freddie and Fannie mess we are already not fixing.

Politicians and regulators always want to make the statistics work. They want home ownership to match the ethnic populations statistics. They want banks to issue mortgages following those same statistics. But, home ownership statistics should only balance with capacity to pay a mortgage. Nothing else.

When they start messing in the housing market, bad things happen. Bad things that bring down the entire US economy. But, they just can’t keep their grubby little hands out of the free market, can they? Now the Fed wants to step in and see how much they can create havoc.

The housing market needs to find a bottom. Plain and simple. It appears that may have happened in Arizona. One of the first to fall and fall the hardest. It may be turning around. Sales are picking up and prices may be ticking up.

If DeMarco can hold off the Fed and Obama, it may find bottom in the rest of the country. If sub-prime mortgages don’t get forced on banks through ethnic statistics that don’t work, it may stay fixed. If the government can dispose of Freddie and Fannie and get out of the mortgage insurance business, it may help avoid another round of bad judgment from some politician. One can only hope.

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