Free Markets Can Solve the Housing Chaos : Private Financing

Welcome to the real world of the Dodd/Frank nightmare and the progressive socialist democrats deciding everyone has to have a house to call their own. This is an subject that seems to never go away and shouldn't.

We should never forget it was Chris Dodd and Barney Frank, both progressive Democrats as well as Bill Clinton and both houses of congress controlled by Democrats and a willing main stream media to carry the message of the progressives to the nation, must take the responsibility for this housing market tragedy.

How is this lost on the general public that when ever democrats are involved in anything, the result is always chaos and failure? And yet they are continually voted them into office to make sure the destruction is complete. How can this go on year after year while the country slides further into oblivion?

I wonder how those that voted for more destruction and disintegration of American life by the Democrats will feel when they are waiting in a soup line with their family by their side? What will they be thinking?  Believe, they will have no idea how it happened other then what those that put them in the soup line told them.

Only a Private Housing Finance Market Can Produce Stability
 Source: Peter J. Wallison, "Only a Private Housing Finance Market Can Produce Stability," American Enterprise Institute, December 12, 2013.

December 19, 2013

As long as the government controls the housing finance market, it will continue to be unstable, says Peter Wallison, a fellow at the American Enterprise Institute.

The government began its involvement in the housing finance market in 1934, when the Federal Housing Administration (FHA) was established. The FHA began insuring mortgages, and underwriters had strict standards, requiring a 20 percent minimum down payment, a strong credit record and a low debt-to-income ratio. With these standards, the FHA operated smoothly, with defaults on mortgages below 1 percent.

But in 1957 -- after the economy went into a recession -- Congress reduced that down payment requirement to 3 percent. The move was made in order to stimulate housing demand and had nothing to do with assuring the quality of mortgages. What happened?

• By the late 1960s, foreclosures were 16 times higher for FHA mortgages than they had been in 1953.
• Conventional mortgage foreclosures, however, remained relatively stable, as their loan-to-value ratios were much lower than for FHA mortgages.

Fannie Mae was established in 1938 and Freddie Mac came in 1970. The two government-sponsored enterprises entered the conventional loan market in 1970, but they were required to acquire only prime loans. Between 1953 and 1991, foreclosures in the conventional market remained consistently below 1 percent.

But in 1992, activists began complaining that Fannie Mae and Freddie Mac's standards were excluding too many people from homeownership.

• Congress passed new legislation that required Fannie and Freddie to buy mortgages that were made to low and moderate income borrowers, instituting a 30 percent quota originally.
• The Department of Housing and Urban Development gradually changed these goals, increasing the numbers to 56 percent in 2008.

To meet these requirements, Fannie and Freddie had to reduce their underwriting standards.  As new buyers entered the market, housing prices rose, leading to the housing bubble. Prices began falling in 2007, and because more than half of all mortgages had been made to borrowers with poor credit, the United States saw record defaults in 2008. Investors fled the market and the financial crisis began.
As long as the government controls housing finance policy, this boom and bust pattern will continue.