Arrow-right Camera
The Spokesman-Review Newspaper

The Spokesman-Review Newspaper The Spokesman-Review

Spokane, Washington  Est. May 19, 1883
Clear Day 80° Clear
Opinion >  Syndicated columns

Froma Harrop: Mortgage moves put taxpayers at risk again

Froma harrop

Say we didn’t hear that. Say we didn’t hear that rules for mortgages guaranteed by the taxpayers are going lax once again.

Oh, but we did. For starters, the push is on to lower the minimum down payment required for Fannie Mae and Freddie Mac mortgages to only 3 percent.

During the housing bubble, Fannie and Freddie bought a lot of substandard mortgages. That’s why, when house prices cratered, so did they. The government had to bail them out to the tune of $188 billion. It makes little difference that the taxpayers were eventually paid back. Assuming the risk was not their job.

Taxpayers, you are being handed the bag once again. What makes you particularly vulnerable are the potent political forces determined to keep the game going – an odd alliance of Wall Street financiers and advocates for low-income Americans.

Fannie and Freddie are “government-sponsored enterprises.” They buy mortgages from lenders and package them into securities, which they then sell to investors. As long as these securities carry the government guarantee, investors need not lose sleep over the quality of the mortgages. Taxpayers should.

There have been attempts since the financial meltdown to dismantle Fannie and Freddie. But powerful banking interests have fought every move to transfer risks from the taxpayers’ shoulders to their own.

In response to an angry public, they said, “Rather than end the guarantees, let’s add safeguards to better protect taxpayers.” Some new rules were made. Now they’re being unmade.

The Federal Housing Finance Agency wants the minimum down payment required for a Fannie-backed mortgage, raised to 5 percent, lowered to 3 percent. The prudent rule is for at least 20 percent down.

So-called advocates joined the push for easier mortgage terms – and they should be ashamed, by the way. “Easy money” has been no friend of the poor.

Wall Street feasted during the real estate orgy, preying on the unsophisticated with abusive fees and exploding interest rates. Folks of modest means – drawn into its web by no- and low-down-payment loans – lost their homes.

But before going on, let’s properly assign blame for the recent financial mess. It was not, as many on the right insist, programs forcing upstanding bankers to lend money to marginally qualified borrowers – read “minorities.”

By the late ’90s, half of subprime loans were made by mortgage companies not subject to the much-maligned Community Reinvestment Act. And in any case, the George W. Bush administration gutted the CRA regulations in 2004.

Low down payments often come with higher interest rates – and a requirement to also buy mortgage insurance. Far from being compelled to lend to poor people, Wall Street seeks them out as appealing targets. And when taxpayers assume the risk, it’s a no-lose proposition, is it not?

As for this passing on of risk from lenders to taxpayers, you don’t have to be a conservative to despise it. Barney Frank, the former Massachusetts rep who once headed the House Financial Services Committee, was appalled at the killing of another rule – one that made lenders assume at least 5 percent of the risk for less-than-supersafe mortgages that were rolled into securities.

Frank was extra-pained to see advocates for the poor helping the banking and real estate interests pull this off.

In most of the Free World, governments do not guarantee mortgages. Nonetheless, their people own homes. In this country, bankers and allied interests extract both lax rules and taxpayer guarantees.

And to think, Fannie and Freddie aren’t even out of conservatorship yet.

It’s time this story moved from the business pages to the front pages. Fannie and Freddie must go.

Froma Harrop is a columnist for Creators Syndicate. Follow her on Twitter @FromaHarrop. Her email address is fharrop@gmail.com.
The Spokesman-Review Newspaper

Local journalism is essential.

Give directly to The Spokesman-Review's Northwest Passages community forums series -- which helps to offset the costs of several reporter and editor positions at the newspaper -- by using the easy options below. Gifts processed in this system are not tax deductible, but are predominately used to help meet the local financial requirements needed to receive national matching-grant funds.

Active Person

Subscribe now to get breaking news alerts in your email inbox

Get breaking news delivered to your inbox as it happens.