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Blog

    Uncle Sam Gets into the McMansion Business

    03/05/2008

    The so-called Stimulus Bill recently passed by Congress and signed into law by President Bush contains a provision to nearly double the size of implicit taxpayer guarantees given to home mortgages. The WSJ is reporting on the quick implementation:

    The Federal Housing Administration raised the mortgage limits to a maximum of $729,750 for 14 high-cost counties in California, as the government began providing aid to homeowners required by the recently enacted economic-stimulus package.

    The upper mortgage limits also will apply to loans purchased or guaranteed by government-sponsored mortgage companies Fannie Mae and Freddie Mac, FHA officials said.

    This measure puts the economy (and eventually taxpayers) at real systemic risk in order to aid home buyers who are clearly wealthier than the average taxpayer. Sure, housing prices are too high in California and New York, but that's not a federal problem and the government shouldn't take actions like this to keep prices propped up. (Indeed, the government is also running affordable housing programs because prices are so high.)

    Jumbo loans are riskier by definition, the underlying property is harder to appraise, and there is more room for fraud. If the GSEs, which are losing billions on their existing portfolios, ever collapse in a multi-trillion dollar meltdown, this bill will be one of the key turning points in the downward spiral. Its also a sorry example of the way, over time, that Congress twists government "development" programs into aid programs for the wealthy and sticks the next generation with the bill.