35 Billion Reasons The Crisis Has Taught Us Nothing

The Wall Street Journal is reporting today that the Obama administration is on the verge of committing as much as $35 billion in financing and subsidies to provide mortgages to low- to moderate-income families. Hmm... this sounds vaguely familiar. The government subsidizing the mortgage market making credit artificially easy -- oh yeah! That was one of the reasons why the mortgage market overheated, and we fell into a deep financial crisis. Have we learned nothing?

Here's some detail from WSJ:

The effort, which could be announced as early as this week, is aimed at relieving pressure on government-operated housing finance agencies, which have been struggling to find funding amid the downturn. These agencies, or HFAs, are a small part of the housing market but are critical to many first-time and low-income home buyers, who can get lower-rate mortgages through an HFA than they could through a private-sector lender. Rates are typically 0.5 to one percentage point lower than commercial lenders.

These HFAs should be having trouble finding funding: everyone is. One of the few positive things coming out of this crisis should be stricter lending standards -- credit was too easy. Mortgages should only be provided to individuals with solid credit, income that can support their mortgage payments and a sufficient down payment.

Now don't get me wrong: some low- to moderate-income individuals may, very well, fit into that mold. But if they do, then they don't need subsidized mortgages. They should be able to acquire financing the good old fashioned way: through a bank willing to bear the risk. Anyone who can't pass through reasonable underwriting criteria for obtaining a mortgage shouldn't be given one. I know "rent" had become one of the dirtiest four-letter words in America during the past decade, but it's really not immoral to require those who cannot afford homes to rent instead. I rent and don't feel like society has wronged me as a result.

Here's some more explanation what this cash will do:

The Treasury Department, along with government-controlled mortgage giants Fannie Mae and Freddie Mac, is expected to buy as much as $20 billion of new housing bonds issued by the state agencies. It will also provide $15 billion in additional funding, as needed, to help the agencies continue to use a type of cheap, short-term financing.

The Treasury doesn't need Congress' approval either, since it doles out this cash with power given to it from the 2008 Housing and Economic Recovery Act.

This is just the kind of news that makes me shake my head. Many of those who would qualify for these mortgages are likely good, upstanding individuals. But why not let them wait a few years for the market to recover completely and underwriting to loosen a touch, instead of using a huge portion of taxpayer money to finance their mortgages? What's so bad about their renting until the market is willing to take the risk on their mortgage instead of the government?