Washington Special Interests and Mortgage Loans

“Pro-Housing Policies will Stimulate Job Growth” says the National Association of Home Builders. Well, good, where do we start? What exactly are those “pro-housing” policies?

“The inventory of new homes for sale is at a record low and there are many areas of the country that are approaching a housing shortage. Tight credit conditions are preventing builders from meeting this emerging demand, putting workers back on the job and helping the economy move forward.” according to the NAHB.

Really? So, for example, we should have higher loan limits for FHA loans? That would do a lot for housing demand. Only .75 percent of all FHA loans were for more than $500,000 as of mid-September. Even fewer borrowers need or want loans above $625,500, the new single-family loan limit.

“Further exacerbating the situation is today’s pervasive anti-housing climate in Washington,” said NAHB Chairman Bob Nielsen.

Is that so? Name 10 “anti-housing” Republican congressional representatives and 10 “anti-housing” Democratic House members. If these folks are against housing do you mean they want people to live on the streets?

“Leaders in Washington must stop scaring consumers by talking about eliminating the mortgage interest deduction, ending a federal backstop for housing and calling for a minimum 20 percent downpayment on home loans,” said Nielsen. “This is counterproductive and harms consumer confidence, the housing market and the nation’s economy.”

Who, exactly, is talking about eliminating the mortgage interest deduction? Where is the scare? Where is the legislation which says — like Canada — that home mortgage interest will no longer be deductible for any reason by anyone?

Or, is the worry that rich folks will get less of a deduction? And if that’s the case, why is that bad for someone making $50,000 a year? Or someone without a job?

And about ending the “federal backstop” for housing? If that’s a problem speak to the special interests over at the Mortgage Bankers Association. They’re concerned — get this — “that the FHA programs will be over-utilized.” Where oh where would borrowers get their mortgages if FHA insurance was less available?

And no one is calling for a 20-percent minimum downpayment for ALL mortgage loans, no matter how often such a claim is repeated.

Under Wall Street reform — the Dodd–Frank Wall Street Reform and Consumer Protection Act — VA mortgages, FHA loans, and conventional loans sold to Fannie Mae and Freddie Mac are all within the definition of a qualified residential mortgage or QRM. Today you can generally get FHA financing with 3.5 percent down, nothing down with a VA loan and 5 percent down with conventional mortgages.

What the new rules say is that if lenders want to pump risky loans into the market such as option ARMs, interest-only mortgages or financing based on no-doc loan applications then they should have more skin in the game. That means a 5-percent reserve under the new rules for lenders who want to originate high-risk loans and 20 percent down for borrowers. The idea is to prevent lenders from again coming back to taxpayers asking for a bailout.

If home builders want to help the housing sector here’s a place to start: Make mortgage subsidiaries and other controlled lending entities illegal for home builders. Make sure no builder — directly or indirectly — receives compensation or a thing of value from any loan to any home buyer.

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