Not really. Just another essay for everyone to ignore on housing finance reform.
If we want asset accumulation, then it is better to offer subsidized savings plans to help home buyers reach a 10 percent down payment threshold than it is to offer subsidized mortgages with down payments of less than 10 percent. If we want asset accumulation, we should make sure that there is no government guarantee or support of any kind for loans with negative amortization (including “teaser adjustable-rate mortgages”), second mortgages, home equity loans or cash-out refinances.
I’m afraid that the fix is in on housing finance reform. Wall Street will get what it wants. The housing lobby will get what it wants. I should just let it go and move on.
To paraphrase a famous saying, “The moral arc of housing finance is long, but it bends towards accountability and sufficient internalization of counter-party risk.”
Don’t give up, Dr. Kling, even marginal improvements in mortgage finance make people a little better off, and without good economists like you challenging the status quo, the only voices left are Wall Street and affordable housing advocates!
I am laughing right now.
I think this is a less permanent issue. Normally, if nominal rates are high enough, either due to inflation or real rates, the constraint to home ownership is making the monthly payment with current income. During those times, reducing the monthly payment is the best way to qualify, so these low-down payment factors aren’t useful.
Because we have the unusual condition of both low inflation and low real rates, the normal constraints aren’t as constraining, and so we are in an unusual time when these methods of making home ownership accessible are useful.
I did some analysis which led me to conclude that the housing boom reflected reasonable prices, considering the effect of low real rates on home values. The problem of government agencies taking on default risk on low downpayment mortgages is real, but I believe it is not permanent, unless the Fed leads us into Japan territory for the next 20 years.
http://idiosyncraticwhisk.blogspot.com/2013/08/real-interest-rates-and-housing-boom.html
It’s appropriate to focus and then refocus again for emphasis on housing finance reform as Jesus Christ has been in dispensation, that is in the active management of all things economic and political and spiritual, as revealed by the Apostle Paul in Ephesians 1:10, bringing forth Liberalism in 1931, with the establishment of the US Fed; and then again maturing Liberalism in1971 with the provision of the Milton Friedman Free To Choose floating currency system, and in 1999 with the Reapeal of the Glass Steagall Act establishing a modern banking regime, and with the provision of the Euro currency as a platform for further monetary expansion as well as regional political intervention.
Liberalism’s policy was one of investment choice, with all kinds of credit schemes like you mention, and all kinds of currency carry trade schemes as well, as some bought their homes using FX currency carry trades originated by Austrian bankers.
But now with the Interest Rate on the US Debt having soared to 2.75% in August 1, 2013, Jesus Christ like a ship’s steward, has fully completed the ship’s manifest, providing a moral hazard based prosperity, where gains have been privatized to the bankers and losses socialized to the public.
With John McCain fathering World War III in the Middle East, Jesus Christ is fully pivoting the world into Authoritarianism, with its polilcies of diktat and schemes of control and debt servitude producing austerity for all.