February 17, 2010

The Politics of Housing

The Bedrock Asset That Was

Residential property is our single largest asset and mortgage debt, when paid, constitutes the largest financial assets in most economies. The great American housing boom caused home prices to outpace rental growth. A historic first. It seems clear that the housing boom involved dramatic increases in housing prices relative to housing rent.

In 2008 alone, the United States government allocated over $900 billion to special loans and rescues related to the US housing bubble, with over half going to the quasi-government agencies of Fannie Mae, Freddie Mac, and the

Federal Housing Administration. At the end of 2009,in December (when we werent looking) the Treasury Department announced it would be providing Fannie Mae and Freddie Mac unlimited financial support for the next three years despite $400 billion in losses.

The Housing and Economic Recovery Act of 2008 (HERA) gave FHFA the authority to set performance goals for Fannie and Freddie. The goals set minimum percentages of all housing units financed by mortgages acquired by them in a given year. For 2010 and 2011, the FHFA proposal set three single-family owner-occupied goals and a single-family refinancing goal.

FHA Requirements
1. Single-family housing: that 27% of the total number of mortgages purchased by Fannie and Freddie be of low income family housing, defined low-income not exceeding 80% of the area median income.
2. Single-family housing: required that 8% of the Fannie and Freddie purchases be of very low-income family mortgages, defined as family income that does not exceed 50% of the area median income.
3. Single-family housing: required that 13% of the total number of mortgages purchased by Fannie and Freddie would be originated in low-income areas.

For 2010 and 2011, 25% of Fannie and Freddie purchases of refinanced mortgages must be low-income family loans. The FHA insists it will not undertake uneconomic or high-risk activities in support of the goals

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