Mexico City My money says that if Treasury Secretary Geithner is designated to make the announcement on the Administration’s future plans for the housing finance mortgage guarantors Fannie Mae and Freddie Mac, it should be understood as a message directly to Wall Street and the housing industry, and therefore indirectly to the Republicans and the right. The claim is that there would be a 5-6 year wind down of the agencies with the federal government conceding (listen Tea People and Republicans!) that financially supporting widespread home ownership by the middle class is no longer possible given US budget constraints. The claim without a presentation of any plan was that there would be increased support for renters (yeah!?!) and continued federal support for lower income families and their housing needs (yeah?!?).
So far this seems more of an effort to reframe the housing debate, than fix much of anything. This is more about politics than it is about finance or markets.
The burn in the housing meltdown was the claim that somehow there had been wild, easy money thrown at undeserving, hustling families regardless of income and affordability which then sank the market when these poor, working families could keep up with the bills. There is little factual support for these claims, especially when they are pushing the blame towards lower income and working families. The facts support an understanding that most of the money moved towards hot housing for solidly middle and upper middle class families who pushed the bubble higher and higher as prices flipped in the same direction and money invested became lower and lower for such families. Certainly we have found in Arizona and Florida a lot of working families were caught short when the music stopped, but largely because of the overall recession and the slashing of their jobs and income, rather than some kind of excessive liberalism on financing. Meeting with many families in Phoenxix with Advocates and Actions, it was startling how much money families had lost when they lost their houses. These were speculators, but homeowners.
In short both the housing interest exemptions and the mortgage support from Fannie Mae and Freddie Mac are by and large huge middle class federal benefits. In the first case a huge entitlement for everyone, and in the second a low entry support for financial institutions who were able to slide off risk, keep mortgages out of their own portfolios, and therefore allow middle class families to become homeowners more easily. My bet is that as the clock ticks down on Fannie and Freddie, the Administration will hear the right and the Republicans crying like stuck pigs when the real narrative is a loss of a huge and expensive middle class benefit. The most ridiculous proposals have been advanced by banks who have suggested that they would jointly own a mortgage finance organization with the feds, basically claiming the rewards, sharing little real risk, and undoubtedly leaving the government holding the bag on any downside. The various mortgage associations are also screaming because they understand that the middle class has been buying houses and know that this will make it all harder.
Lower income and working families need a real housing program and none really exists now. The subprime market has been gone (and that is what Geithner is offering the middle class now…a higher interest rate for the same house) and credit scores are through the roof for home financing. Rental supports are inadequate and are still being developed outside of a few major cities for short term rather than permanent housing.
We will have to wait for HUD Secretary Donovan to announce the real plan. So far we are just seeing the big politics kick around the housing football and reframe the issue so that heads the President wins (fiscal restraint, debt reduction) and tails the President wins (an eventual compromise continuing to provide some middle class opportunities with benefits from those friends).
Eventually we are really going to have to address the desperate need for adequate and affordable housing for everyone, but it seems now is not quite the time yet.