09.10.2010 0

New HomePath program is reason to put Fannie Mae out of its misery

It has been said that one of the definitions of insanity is to keep doing the same thing over and over while expecting a different result. If true, then Fannie Mae has just hit the insanity jackpot.

The Government-Sponsored Enterprise (GSE) whose policy of encouraging and guaranteeing home loans targeting people who cannot afford to own a home is at the root of the entire housing crisis and the resulting economic calamity that has driven unemployment rates to 9.6 percent is at it again.

As proof that the devil is in the details, I was ready to applaud Fannie Mae for beginning the process of putting the houses and real estate that they now own due to the current crisis back on the market — until I read the details of the HomePath program.

Fannie Mae is not putting houses on the market in our neighborhoods that compete equally with others on the market. No, they are giving themselves a competitive advantage over the average homeowner who is trying to sell in a down market.

It seems that Fannie Mae executives don’t realize or care that by selling the houses they own using unfair tactics they are hurting the ability of every homeowner in the area to sell their homes without offering an even steeper price discount.

If you buy a Fannie Mae home through the HomePath program you:

• Are able to pay a down payment of as little as 3 percent of the purchase price, instead of the 10-20 percent required by most mortgage bankers under the new, tighter financial reforms;
• Are allowed to borrow or have someone give you the money to pay the down payment, unlike those who are trying to buy a non-Fannie Mae home using the private banking system which requires that you come up with your own cash;
• Don’t have to pay mortgage insurance, unlike private bank customers who are required to pay an additional mortgage insurance premium if they are putting under 20 percent down;
• Don’t have to pay appraisal fees, unlike someone buying from a private seller; and
• Can borrow hundreds of thousands of dollars with a lower credit rating than is required by banks.

Didn’t we just dance this dance?

Fannie Mae is going to sell the houses that they own because they were repossessed from people who couldn’t afford them, to other people who can’t afford them. All in the name of expanding the dream of home ownership.

Apparently, the geniuses in charge of the government-owned Fannie Mae were asleep the past couple of years when this very house of cards collapsed costing taxpayers hundreds of billions of dollars, and driving over-inflated home values down so sharply that many homeowners cannot sell because they have negative equity in their house.

Apparently, these masters of finance don’t realize that the dream of home ownership rapidly becomes a nightmare for those who cannot afford their house payments, and offering them the keys to the castle without the capacity to pay for it, is setting buyers up to become mortgage slaves.

Inadvertently, Fannie Mae has provided the final justification for their elimination by Congress. By manipulating the market, they are hurting every homeowner who pays his/her mortgage by artificially lowering their home values. All because Fannie Mae is unwilling to simply offer their homes for sale to compete with the other homes in the marketplace, instead they have to game the system against the other homes they are competing against in the market.

Ultimately, one of the necessary steps for our nation to recover economically is for the government to sell the housing stock that it owns. Selling these homes will lower surrounding home values due to normal supply and demand principles. However, to artificially make the government homes more valuable than the privately owned homes due to special taxpayer-backed sales subsidies is a slap in the face to every American who sacrifices to pay his/her mortgage.

The fact that either the fine folks at Fannie Mae did not understand basic supply and demand principles of the marketplace, or think it is okay to disregard the impact jimmying the rules to their benefit will have on those who currently own homes is astounding.

The fact that it is our federal government that is engaging in this assault on homeowners’ property values is disheartening. This next Congress needs to put Fannie Mae out of its misery, before it does any more harm.

Rick Manning is the Director of Communications of Americans for Limited Government (ALG) News Bureau.

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