Somehow the government is managing to do exactly the opposite of what it should be doing: it's subsidizing home ownership for the rich while cutting funding for affordable housing for the poor
When Congress allowed the conforming mortgage limit to decline slightly to $625,500 in October from $729,750, it was an important test. Could the private market step back in and take on this small portion of mortgage risk? The test was short-lived. This week, Congress reinstated the higher limit for loans guaranteed by the Federal Housing Authority. To make matters stranger, it simultaneously cut funding to build and renovate housing projects for the poor.
Lending Very Wealthy First-Time Homeowners a Helping Hand
Let's start with the conforming limit news. In fact, Congress did not raise the conforming limit for loans that Fannie Mae and Freddie Mac can buy or guarantee. It only raised the limit for FHA loan guarantees. This is a very odd move.
The FHA exists to help first-time home buyers and those on the cusp of being able to afford to buy a home. It does this by allowing borrowers to make very low down payments along with the purchase of mortgage insurance. This is distinct from Fannie and Freddie, which exist more to provide market liquidity.
Think about the implications for the mortgages we're talking about here -- those between $625,500 and $729,750. What first-time home-buyer needs a low down payment for a loan that big? If the goal is to make housing more affordable, then surely a first-time buyer could just aim for a more affordable home to begin with. Even in high-cost areas, starter-homes can be found for less than $650,000 (about the maximum cost of a home with an FHA guarantee before the higher limit was reinstated).
Do borrowers who can afford to pay a mortgage in excess of $625,500 really need the government to subsidize their home ownership?
Shutting Out the Poor
The logic gets more bizarre. This same week that Congress agreed to help out Americans who don't need it by backing giant mortgages, it cut funding for housing projects. Let's go to Debbie Cenziper at the Washington Post for the news:
Housing advocates immediately condemned the nearly 38 percent cut to the HOME Investment Partnerships Program, which for two decades has provided grants to local governments for housing construction and renovation, home repairs and down payment assistance. Under a partial budget bill passed by the House and Senate on Thursday, the HOME program's budget would drop to $1 billion, down from $1.6 billion last year.
"I've never seen anything else that steep," said Sheila Crowley, president of the National Low Income Housing Coalition. "The impact is huge. It will have a ripple effect throughout the system."
If the economy was flourishing and unemployment was 4%, this might not be so alarming. Sadly, that isn't the situation we're in. We live in a time when one-in-six Americans are underemployed. Foreclosures continue to plague the nation. This combination could lead to more Americans than ever having no choice but to turn to the government for housing assistance. Yet a housing program meant to help those who might need it most is cut by 38%.
Juxtaposing this move with increasing the FHA loan limit should appall anyone -- progressive and conservative alike. If the government has any role in the housing market, then it should be to help those who need assistance the most -- not the least. What is Congress thinking?
Short-sighted budget math may explain these actions. Raising the FHA limit may have no direct budgetary implications at all -- even if it leads to losses one day for the FHA. Meanwhile, it slices $600 million from the budget by cutting an affordable housing program. What makes no sense to anyone who actually thinks about it continues to make perfect sense in Washington.
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