As U.S. Government Props Up Housing, Taxpayers Are On The Hook For Billions

washingtonpost.com:

In the go-go years of the U.S. housing boom, virtually anybody could get a few hundred thousand dollars to buy a home, and private lenders flooded the market, aggressively pursuing borrowers no matter their means or financial history.

Read the whole story: washingtonpost.com

Comments

[ResearchtheFacts]

Finally I feel like I'm getting something for my tax dollars. Let's see they take money from me, give it to banks who then loan it back to me? Did I miss the order of things?

[liberal user]

It seems our efforts to achieve actual results with regards to reform in the banking & finance sectors are futile. In addition, the disconnect between reality and wall street keeps widening. The situation is frustrating.
hat tip: to http://www.iamned.com

[liberal user]

Obama isn't doing enough with regards to executive pay and bank & wallstreet regulation

good articles: http://www.iamned.com ...

[KarateKid]

The "American Dream" has become a nightmare. Whatever happened to the country of "taxation without representation?"

[hellboundtrain]

It's "no taxation without representation."
We have taxation without representation now, 'cuz the corporate
greed money-masters own most all of the people in positions of power like indentured servants.

We wonder how it feels to be owned?

[themodernleader]

We are suffering a national nervous breakdown attempting to deny the calumny of national bankruptcy.

[MetalCanuck]

Your government is making it worst, it is being done on purpose too.

[research]

We still have Credit Default Swaps and collateralized debt obligations, so yes, TARP is still backing CDS's even without any cash reserve requirements.

We were extorted for 24T$ in loans and backing, the banks then used that money as more power to grow bigger and extort more next time.

[sonofsamphm1c]

CDS have no reserve requirement, but that does not inhibit people from paying the premium. You do research, tell me why?

They enjoy wasting money? They get a thrill out of getting nothing for something? I just want to know why.

[research]

Because they know the systemic risk will force the Government to bail them out when it fails, See my profile for complete primer on the economy and the crash.

[sonofsamphm1c]

We're not even remotely close to being bankrupt. We're basically like the young couple who buys a tad too much house and has to scrimp for the first couple of years.

[research]

600T$ in gambling debt is the problem. The whole world economy is only 70T$.

We lent the Banksters who caused the crash, 24T$, one third of the Global GDP!

[dnpvd51]

Why is the government encouraging people to borrow an insane amount of money to pay too much for an overpriced house?

If a bank with actual skin in the game is not willing to lend money on a house, the house costs too much. There are no two ways here.

We either have a free market or we have the government command driven economy. And this government lending program is worse than communism since at least in communism one does not need to take on an insane amount of debt to live in a nice house. One need only be politically connected.

[drymartini1]

exactly.

The only way banks would be lending money for home loans in this economy without huge downpayment is because there is some guarantee somewhere.

either they be able to securitize the loans and get their hands off the toxic stuff or they just lend it to "worthy borrowers" (yes that means substantial downpayment).

[MetalCanuck]

We are paying for the Baby boomer retirment now with the money of the Future..and ours in Gen X and Y. We are trying to prop up this eggshell of an economy the boomers left us when they sold everything to China so they can sit on a nice pillow of money till they rot.

[dennisrs]

This is Great. Just Great. Way to go D.C.

[grateful4thedead]

I will say this again, just remember this post.

FHA is soon to implode.

[joe conservative]

Cool I'm ready for obama's economic bubble to burst.

cap 'N trade whoohoo

[sonofsamphm1c]

The article is fundamentally flawed.

We are on the hook for our society. It can only be mitigated by moving away. If the wheel come off America, try to reason through what would happen.

Do you honestly think the taxpayers a devastated country would pay off trillions of dollars in guarantees? No, that would never happen. What are they going to do, enslave the population?

Ultimately money is a convenient illusion. The guarantees are illusions guaranteeing an illusion. If the wheels come off the USA, the country would essentially hit the reset button - uncharted waters for the economy of the earth. The taxpayer will never, as in never ever, be on the hook for 90% of any guarantees made by the United States government.

[texastrixie]

If we had had to put down 20% when we got our house, well, we wouldn't have gotten our house. We might never have gotten a house. If people had to fork over $20,000 in cash (and it should have to be in cash) to buy a $100,000 house - they'd think a lot more before buying that house! And they'd go over that sucker with a fine tooth comb, looking for defects. But when you buy a house with little down, your rent in many instances equals your house payment. Not the upkeep, but the payment. I don't think the housing market will ever fully rebound because many people will not be willing to take a chance on such a risky financial item again. People now realize that their house is only worth what the market (and the economy) says it is. If there is a severe depression, your house (no matter what you paid) might be worth as little as a third of its original cost. Why buy?

[drymartini1]

You answered the question yourself.

Govt. SHOULD NOT be encouraging home-ownership of any kind. Home ownership rules should be changed. Make it illegal to give out loans without 20% down.

20% down worked in the past. It will work now. When a buyer has put 20% down of his own money, he is not going to walk away just because value of the property dropped.

its called "skin in the game".

[sonofsamphm1c]

Except, in the past there have been housing bubbles, and they have popped.

[billyfitz]

Except houses anywhere you would want to live have gotten so expensive, 20% down becomes a prohibitive number. To go back to 20% down like you say, we would also need to go back to housing prices that aren't ridiculously inflated.

Are you willing to sell your house for what it was worth in the 70's or early 80's? Good luck finding buyers with 20% otherwise.

[Peter007]

We have had 2 and 5% down financing for the past 50 years. VA loans and FHA loans are between 0-5% down loans. They were made in the 40's and 50's to middle America and they have never presented much of a problem.

[LunaPark]

Yes, you hit on the crux of the housing bubble. Cheap credit and money supply from the Federal Reserve discount window ultimately allowed banks and mortgage companies to push cheap consumer loans with low or zero down payments. This fueled the boom. If potential buyers were not able to raise 20% down payment on a $100,000 house, then maybe the price would have fallen to say $75,000. There would have been no boom. The market decides best. NOT central economic planning from the Fed.

[sonofsamphm1c]

When is the discount window opened?

[sculptor]

Your cynicism is understandable but you've got to remember that, to a certain extent, this was a crisis engineered by the Bush administration and the people that supported it. to save their own political asses. Remember, the housing bubble is what pulled the economy out of the recession of 2001. In addition to their cleared warped conservative prejudice against regulation, this made those in charge very reluctant to look the gift bourse in the mouth and do something about all the sleazy loans and bogus financial instruments that were driving the bubble. Owning a home may in many circumstances not make as much sense as renting but it does offer a certain sense of security and peace of mind that is hard to put a price on.

[mikefina]

I mis-read the headline, initially. Either my bias, or a poorly written headline--no matter.

I read it that 90% of homebuyers, are taxpayers. Not the argument being offered, as I learned by reading the article.

I am curious, though. How many homebuyers ARE acutal INCOME-TAX paying purchasers? If your income level is so low, that you aren't an income-tax payer, should you be entiltled to the implicit mortgage guarantee subsidized only by taxpayers?

Anyone?

[billyfitz]

Low income citizens tend to rent, as they don't have money to buy houses - knucklehead.

[mikefina]

Factually incorrect. Intellectually dishonest. Boneheaded, silliness from an indefensibly uninformed scribbler.

http://www.federalhousingtaxcredit.com/2009/faq.php

I don’t owe taxes and/or my income is exempt from tax and I do not have a filing requirement. Do I qualify for the credit?

A. The credit is fully refundable and, if you qualify as a first-time homebuyer, having tax-exempt income will not preclude eligibility. Although there are maximum income limits for qualifying first-time homebuyers, there are no minimum income criteria. Thus, someone with no taxable income who qualifies as a first-time homebuyer may file for the sole purpose of claiming the credit for a refund.

SO, since you have nothing to add, please go away.

[Peter007]

It may be this article is misleading.
One could also say that because we have to pay for gasoline with US printed dollars, that the Federal Government is needed to by any gasoline.
Banks and mortgage companies are making the loans. The money comes from selling older loans to FNMA or Freddie Mac. Since FNMA has run out of funds, the injection of money into FNMA by the treasury allows them to continue to purchase mortgages made by banks. Its part of the solution to the credit crunch. Before, the loans could be packaged in bundles and sold overseas with a AAA rating to raise cash.
How reliable is a AAA rating now?
The US treasury has always injected funds into the Banking system so they could lend the cash out to buy cars, TV's and lawnmowers. Now it is lending to FNMA which is a quasi-government institution, so people can buy homes.

[LunaPark]

Freddie and Fannie were private shareholder owned companies. They should have been allowed to fail and go through the bankruptcy process. Instead, as the article points out, tax payers are on the hook for $5 trillion worth of bad loans. The shareholders have been rewarded for making bad decisions. Private companies manipulating our government. Ralph Nader calls this a "corporate managed market." Ron Paul calls it, "soft fascism." Whatever it's called, it's horribly unjust.

[xansam]

so we can not have "socialized" medicine but we can have socialized housing?

[watchTVgetSTUPID]

Socialized housing is really to help the Banks with their horrible balance sheets if the requirement for mark to market accounting was not waived. This is a way to use tax payer money to indirectly bail out the banks. If the banks did not benefit, then Obama's Wall Street Administration would have fought it (like they fought against letting bankruptcy judges reset value of mortgages to a realistic value instead of kicking families to the street.).

[xansam]

fair point, but people only buy because banks have relaxed the rules and they know they government is going to bail them out. nobody seems especially outraged.

[dennisrs]

Again coming to the taxpayer for another bailout. Next will be the credit card companies and bank division.