Real estate professionals should be upset today. A terrible blow for the integrity of the real estate industry – for housing as a foundation of personal equity and wealth, for the rule of law in mortgage lending, for simply doing good for ordinary Americans – has just been dealt by the government. A so-called “great compromise” has just laid $300 billion – financed by Fannie Mae and Freddie Mac – in bad debt at the footstep of the taxpayer. According to the Wall Street Journal:
The legislation combines the regulatory reforms for government-sponsored enterprises Fannie Mae and Freddie Mac with a proposal to use the Federal Housing Administration to offer up to $300 billion in federal guarantees to help refinance struggling borrowers into new mortgage loans.
One compromise proposal discussed last week would use the money from an affordable housing fund created from Fannie Mae’s and Freddie Mac’s earnings to help pay for the FHA guarantee program.
This program spells disaster for the real estate industry in a number of ways, including diverting “money from an affordable housing fund” to refinance unsound borrowers. If anything, that should have REALTORS crying foul, considering how much time they spend extolling the virtues of affordable housing across America. Worse, by using taxpayer money to refinance bad borrowers, the government is sending a signal that the real estate industry is essentially a joke: Don’t worry about pricing your home right, putting money down or building your credit: Uncle Sam will bail you out no matter what. With that logic in mind, why doesn’t Uncle Sam simply put the nail in the REALTOR coffin and say, “Oh, and don’t bother paying your REALTOR a commission, either; Apparently nothing they tell you really matters because we’ll come to the rescue if you decide to completely ignore their advice.”
If real estate brokers really want to find the bottom of the housing market decline, pouring public money into the flames won’t douse the fire: instead, it will fuel another round of speculative borrowing and shore up – rather than clean out – borrowers who will ultimately default anyway. All the proposed bill will do is put off for another day the rain. Real estate agents should know this – because buyers certainly do. The main reason many buyers are waiting on the sidelines these days is that they expect the market to fall further – and they aren’t wrong. As long as Uncle Sam keeps pouring money into a false credit market, buyers can be assured that when the bottom finally comes, it will be that much lower.
Any government action to let Fannie or Freddie lower their rates, loosen their application standards or simply refinance bad debt (rather than call it in) damages the housing industry and American homeownership. When Uncle Sam purchases bad loans, he’s purchasing the right to the assets as well: Which means Uncle Sam is nationalizing large swarths of homes across America. Rather than private property, more so-called homeowners (really renters) will be living in government subsidized housing. It’s a massive movement to socialize housing. And Roosevelt couldn’t have done it better.
REALTORS should beware. Once Uncle Sam owns most of the housing in America – or even large parts of it – they are going to end up like doctors who have to deal with Medicare. Fixed reimbursements will take the place of their market-driven commissions. They’ll have to take whatever the government offers them – maybe $300? – when they do a deal with a seller whose mortgage (and therefore home) is owned by the government. Already dealing with HUD homes and government auctions means lower income opportunities for REALTORS – that’s why so few of them do it. What happens when – someday – that’s all there is?