Kammie Harris on Friday floated a panoply of government subsidies to make housing more “affordable.” Sound familiar? It’s the same playbook Democrats have used for student loans.
The plan goes as follows: Subsidize Americans to take out bigger mortgages. If they can’t repay them, no worries—Ms. Harris will simply wave the payments away. The Biden administration is already doing this on the sly, which is a major reason housing prices have grown at more than twice the overall inflation rate since the start of the pandemic.
About 70% of single-family mortgages are guaranteed by federal agencies or government-sponsored enterprises such as Fannie Mae and Freddie Mac, which are regulated by the Federal Housing Finance Agency. Ms. Harris wouldn’t need Congress to subsidize home buyers. The Obama and Biden administrations have done so merely by easing credit standards and reducing costs to borrowers for government-backed mortgages.
The Federal Housing Administration—which insures homes for lower-income and first-time buyers with down payments as low as 3.5%—cut mortgage premiums in 2015 and 2023. This increased buyers’ purchasing power by a combined 10.5%, according to the American Enterprise Institute’s Ed Pinto. It also pushed up home prices.
The feds have also enabled riskier buyers to qualify for bigger mortgages. The Consumer Financial Protection Bureau in 2013 effectively barred lenders from issuing mortgages to those whose total debt payments would exceed 43% of income. Yet the CFPB rule exempted government-backed mortgages.
As home prices rose, lenders issued mortgages to buyers with increasingly more debt. About 70% of recent Federal Housing Administration loans and 40% of mortgages backed by Fannie and Freddie have debt ratios that the bureau considers risky. That’s up from 30% and 16%, respectively, in 2012, according to an analysis by Mr. Pinto.
Meantime, Fannie and Freddie have allowed buyers to take out mortgages with down payments as low as 3%. Harking back to the bubble days of the mid-2000s, personal gifts, lender assistance and government grants can count toward the amount. Some lenders are letting buyers take out second mortgages to make down payments.
An increasing share of buyers have little equity in their homes, which increases the risk of default. Ms. Harris’s plan for $25,000 in down-payment assistance for “first-time” buyers would magnify that risk. It would also fuel inflation in housing prices.
The reported improvements in home buyers’ credit scores offer little consolation. Three-fourths of recently delinquent Fannie and Freddie homeowners have “good” or better credit scores. Call it grade inflation for credit scores.
A series of events have led home buyers to appear more creditworthy on paper. Credit bureaus have removed most medical debt from reports since 2022. Student-loan defaults were also almost entirely wiped out with the Biden administration’s forbearance. At the same time, abundant Covid stimulus payments allowed borrowers to pay down credit-card debt.
Now, however, many homeowners are struggling with high inflation and debt payments. Hence the Biden administration game of “extend and pretend,” the suspect practice of modifying mortgages to avoid defaults and foreclosures.
The FHA rolled out a “home retention” plan last winter that covers the late payments of delinquent borrowers and up to 25% of the principal and interest on monthly payments for three years. Not to be outdone, the FHFA in May instructed Fannie and Freddie to extend the duration of mortgages and cut principal and interest payments by 20% for homeowners facing “hardships.” According to Freddie, that includes “reduction in income,” “unemployment” and an “increase in housing expense due to circumstances outside the Borrower’s control (e.g., uninsured losses, increased property taxes, or an HOA special assessment).” No documentation required.
In other words, after enabling riskier borrowers to qualify for mortgages they can’t afford, the Biden administration is writing down monthly payments to stop defaults. This is mortgage forgiveness by another name. The FHFA reports some 1.4 million “home retention” actions by lenders since 2021.
The Veterans Affairs Department has extended its foreclosure moratorium through December and directed loan servicers to reduce interest rates for struggling borrowers to 2.5%. Such actions “helped more than 145,000 Veterans and their families avoid foreclosure in 2023 alone,” the VA boasts.
The result of such programs is a tighter housing market, jacked-up prices and moral hazard. Buyers don’t have to worry about taking on larger mortgages since the government has told servicers to reduce payments if anyone runs into trouble.
Ms. Harris brags that she “took on the big banks” as California’s attorney general after the housing meltdown. Their alleged transgression? Foreclosing on delinquent homeowners without providing sufficient “modification” options. The ballyhooed mortgage settlement she helped negotiate forced banks to write down government-backed mortgages for underwater borrowers. Expect more of the same from a President Harris.
Here we go again, while Biden made suckers out of all of us that did the right thing and repaid our student loans, Harris is going to make suckers out of everyone who did the right thing and paid their monthly mortgage payments and paid off their homes.
The plan goes as follows: Subsidize Americans to take out bigger mortgages. If they can’t repay them, no worries—Ms. Harris will simply wave the payments away. The Biden administration is already doing this on the sly, which is a major reason housing prices have grown at more than twice the overall inflation rate since the start of the pandemic.
About 70% of single-family mortgages are guaranteed by federal agencies or government-sponsored enterprises such as Fannie Mae and Freddie Mac, which are regulated by the Federal Housing Finance Agency. Ms. Harris wouldn’t need Congress to subsidize home buyers. The Obama and Biden administrations have done so merely by easing credit standards and reducing costs to borrowers for government-backed mortgages.
The Federal Housing Administration—which insures homes for lower-income and first-time buyers with down payments as low as 3.5%—cut mortgage premiums in 2015 and 2023. This increased buyers’ purchasing power by a combined 10.5%, according to the American Enterprise Institute’s Ed Pinto. It also pushed up home prices.
The feds have also enabled riskier buyers to qualify for bigger mortgages. The Consumer Financial Protection Bureau in 2013 effectively barred lenders from issuing mortgages to those whose total debt payments would exceed 43% of income. Yet the CFPB rule exempted government-backed mortgages.
As home prices rose, lenders issued mortgages to buyers with increasingly more debt. About 70% of recent Federal Housing Administration loans and 40% of mortgages backed by Fannie and Freddie have debt ratios that the bureau considers risky. That’s up from 30% and 16%, respectively, in 2012, according to an analysis by Mr. Pinto.
Meantime, Fannie and Freddie have allowed buyers to take out mortgages with down payments as low as 3%. Harking back to the bubble days of the mid-2000s, personal gifts, lender assistance and government grants can count toward the amount. Some lenders are letting buyers take out second mortgages to make down payments.
An increasing share of buyers have little equity in their homes, which increases the risk of default. Ms. Harris’s plan for $25,000 in down-payment assistance for “first-time” buyers would magnify that risk. It would also fuel inflation in housing prices.
The reported improvements in home buyers’ credit scores offer little consolation. Three-fourths of recently delinquent Fannie and Freddie homeowners have “good” or better credit scores. Call it grade inflation for credit scores.
A series of events have led home buyers to appear more creditworthy on paper. Credit bureaus have removed most medical debt from reports since 2022. Student-loan defaults were also almost entirely wiped out with the Biden administration’s forbearance. At the same time, abundant Covid stimulus payments allowed borrowers to pay down credit-card debt.
Now, however, many homeowners are struggling with high inflation and debt payments. Hence the Biden administration game of “extend and pretend,” the suspect practice of modifying mortgages to avoid defaults and foreclosures.
The FHA rolled out a “home retention” plan last winter that covers the late payments of delinquent borrowers and up to 25% of the principal and interest on monthly payments for three years. Not to be outdone, the FHFA in May instructed Fannie and Freddie to extend the duration of mortgages and cut principal and interest payments by 20% for homeowners facing “hardships.” According to Freddie, that includes “reduction in income,” “unemployment” and an “increase in housing expense due to circumstances outside the Borrower’s control (e.g., uninsured losses, increased property taxes, or an HOA special assessment).” No documentation required.
In other words, after enabling riskier borrowers to qualify for mortgages they can’t afford, the Biden administration is writing down monthly payments to stop defaults. This is mortgage forgiveness by another name. The FHFA reports some 1.4 million “home retention” actions by lenders since 2021.
The Veterans Affairs Department has extended its foreclosure moratorium through December and directed loan servicers to reduce interest rates for struggling borrowers to 2.5%. Such actions “helped more than 145,000 Veterans and their families avoid foreclosure in 2023 alone,” the VA boasts.
The result of such programs is a tighter housing market, jacked-up prices and moral hazard. Buyers don’t have to worry about taking on larger mortgages since the government has told servicers to reduce payments if anyone runs into trouble.
Ms. Harris brags that she “took on the big banks” as California’s attorney general after the housing meltdown. Their alleged transgression? Foreclosing on delinquent homeowners without providing sufficient “modification” options. The ballyhooed mortgage settlement she helped negotiate forced banks to write down government-backed mortgages for underwater borrowers. Expect more of the same from a President Harris.
Here we go again, while Biden made suckers out of all of us that did the right thing and repaid our student loans, Harris is going to make suckers out of everyone who did the right thing and paid their monthly mortgage payments and paid off their homes.
