I could not believe it last week when I heard that the Obama administration was once again pushing banks to make mortgage loans to people with weak credit. What is the definition of insanity again? Oh, yeah "doing the same thing over and over again and expecting different results" - a quote supposedly attributable to Albert Einstein. And how did this end the last time the government tried to get everyone to own their own home?
Of course, many still believe the widely dispersed myth that greedy bankers caused the crisis by profiting from losing money - yeah, never did understand that story. So I guess people who subscribe to that theory have nothing to worry about. However, the evidence is quite clear that the government's meddling in the housing market played a huge role in the creation and bursting of the housing bubble and I guess it will again.
I'm studying a real estate finance book for my continuing education requirement - that's another story of government requirements getting in the way of taking care of business. Even though the book was written in 2008 they began their story of the mortgage crisis with this sentence: "Under pressure from the government to reach out to the underseved market, Fannie Mae and Freddie Mac initiated affordable loan products with more liberal qualifying standards." I think that pretty much sums it up. You know...Fannie Mae and Freddie Mac will be the only financial institutions on which the government will lose their bailout funds.
Let's review the myriad of ways the government interferes with the housing market:
- Originally they created Fannie Mae
- Then Freddie Mac
- Then Ginnie Mae
- There's the FHA
- There's HUD
- There's the Community Reinvestment Act
- The Federal Reserve is manipulating interest rates to goose the housing market
- The tax code subsidizes home ownership
Geez! Isn't this enough already?
I've seen the damage first hand from people who lived in homes they had no idea how to take care of: odd collections of Home Depot products awkwardly attached to floors and walls, paint carelessly slapped on walls, appliances ripped out on the way out the door, tens of thousands of dollars of intentional damage inflicted on a property in retribution for ONLY being allowed to live in a house for 2 years without making a mortgage payment. Yeah, that felt so good let's do it again.