October 19, 2009For immediate release

Tripling Down On the Wrong Housing Policy

By Edward Pinto,

consultant to mortgage-finance industry, expert on the causes of the mortgage crisis, former chief credit officer at Fannie Mae in the 1980s, and 10years experience in affordable lending prior to 1984The Obama administration today unveiled yet another program designed to propup the housing market, this time providing additional aid to state and local housingagencies in an effort to keep rates low and expand financing for low and moderateincome borrowers.The bailouts of Fannie and Freddie and the likely bailout of FHA have taught theadministration nothing. This new initiative amounts to a tripling down on the samewrong housing policy.As Charles Lane opined in Sunday’s Washington Post:“For decades, the U.S. government has subsidized homeownership -- viaFHA insurance, the mortgage interest deduction, Fannie Mae and FreddieMac, and many other programs. The resulting overinvestment in residentialreal estate is a major cause of the current crisis. Yet, in trying to cope withthe crisis, Washington is pouring on more housing subsidies, thus deepeningthe federal commitment to the old strategy and making it harder to move to anew one.” Washington Post “Doubling Down On the Wrong HousingPolicy”, October 18, 2009The government’s reaction to the accelerating house price downturn in late-2008has been to pump over $1.6 trillion in stimulus into the housing market over the last13 months, with a likely $700 billion yet to come over the next 5 months. This hasbeen undertaken in an attempt to keep market values from declining to a moresustainable equilibrium point.Combine this over stimulus with creative financing and the government’s new roleas predatory lender emerges. FHA has done hundreds of billions of predatorylending over the years, with its pace increasing many fold just over the last twoyears.