Uncle Sam- Mortgage Pusher Man

Finance Professor Michael S. Rozeff reports:

Our political leaders, including Alan Greenspan, encouraged home equity loans, legislatively encouraged home ownership among persons who could ill-afford them (see the American Dream Down Payment Act of 2003), and encouraged variable rate loans at teaser rates. They downplayed the risks. This speech by Greenspan pooh-poohed the massive debt increases of American homeowners.

The Congress is still playing the same game, encouraging more debt among Americans by raising the Fannie Mae loan limits. Spending instigated by borrowing will neither help the economy nor help untangle the foreclosure mess. The Congress is out of step with reality. Fannie Mae and Freddie Mac are at the center of the housing meltdown. They securitize mortgage loans. They themselves maintain incredibly high financial leverage. Their purchases of loan bundles enable mortgage originators to create new mortgage loans. Congress’ answer to the housing bubble is an attempt to blow it up again. Meanwhile, the stock market is deflating the stocks of Fannie Mae (FNM) and Freddie Mac (FRE).

The Congress worries about drug pushers while it is the biggest pusher of all. It is the master mortgage pusher. It has pushed home ownership and mortgaging for decades. In recent years, Congress was comfortable with lenders pushing loans of greater value than the house value at vanishing interest rates. It was comfortable with Fannie Mae securitizing these loans. Now, millions of foreclosures are the result of Uncle Sam’s mortgage pushing.

The cure for artificially high real estate prices is lower housing prices.Nothing else.