I am poor enough to need to ask. Or because this is the first time I have heard of this and seemingly the first time the government has done it…
What is backstopping a mortgage? The article is behind the rag’s paywall. Why is the government doing this?
Just what we need – another government program to give to the rich.
The GSEs were established to build a mortgage market for the working and middle class. As a taxpayer, I’m not too happy about backstopping jumbo mortgages…especially since ARMs will have large increases due to rising mortgage interest rates and a recession is on the way.
Paying for defaulted McMansions isn’t on my government must-do list.
An important percentage of the mcmansions in this area are rotting. Divorced women some of them stay in these homes. Even if the woman is a high earner if it was a two income family that made it work these houses start to rot. The construction materials were not always excellent. With any house maintenance is expensive. The basic stuff of water heaters for 5000 sq ft homes…
It’s obscene. If you can afford a home over $1M, then you can afford an unsubsidized (govt backing is essentially a subsidy) mortgage loan from one of the thousands of banks out there.
Nor mine. They should be backstopping lower income people having to pay the outrageous oil and electricity prices, up 2-3x and 70% respectively just so far over 2 years ago. They’d get 10x the value for the spend. Just endlessly stupid policy decisions.
A million dollars ain’t what it used to be…
Although still well above what should be backed by the govt.
If only we had a free market where lenders go bankrupt if they fail to assess the risks properly.
While I agree with you to a certain extent, history shows that this situation caused the banks to avoid lending to working-class people. The government decided that the nation’s well-being would be enhanced by widening home ownership, especially among the working class. That’s why it set up the GSEs as publicly sponsored but privately owned companies. Over time, it became clear that the vast majority of mortgages were paid. It wasn’t until the housing bubble of 2005-2007 (caused by the Federal Reserve’s ultra-low interest rates and new financial derivatives) and the 2008 financial crisis that the GSEs failed and their shareholders and bondholders bailed out by the government.
I agree that there’s no problem with letting A lender who made made decisions go bankrupt. But there is a HUGE problem with letting all/most/many lenders go bankrupt for any reason.
The truth is the lender can go under/bankrupt. The issue is around the investment houses…where the $1 million loans are stacked up. The investment houses/big banks are being backed by the government again.
Read the tea leaves folks.
The selling of US paper in Japan and probably in Europe is unraveling. The spiral of yield on the long end of the curve will be following if it all goes wild. Yellen and Power have laid plans to buy the long end of the yield curve.
Lenders go bankrupt all the time.
It’s when they all go bankrupt at once that the economy crashes (See: 1929, 2008. It threatened to happen when the Savings & Loan industry cratered in the 1980’s, but swift government intervention staved off the collapse to the point where people hardly even remember it.)
It’s worth noting that the limits are moving from $970k to $1030k, so it’s not a huge leap. That said, it is - as the WSJ article notes, bound to create controversy. Here’s an interesting stat from the article:
In pricey markets, even starter homes can fetch seven-figure prices. In a 2022 housing survey, the California Association of Realtors found that nearly one-quarter of the homes sold between $1.25 million and $2 million were bought by first-time home buyers. The figures were slightly higher in the San Francisco area and in Southern Califor-nia, the group said.
There are more limitations noted in the article; it only applies in certain high priced areas, for example. For more:
Almost. The GSEs were only getting a fraction of the new mortgages at that time due to the ability of the Wall Street Banks to offer far better initial terms to borrowers (i.e. ARMs, etc). Because the GSEs were NOT getting the borrowing from home buyers, the govt essentially required the GSEs to buy the “AAA-rated” paper being sold by the Wall Street Banks. Those banks SOLD their non-backed paper and ran with the profits. The GSEs issued govt-guaranteed paper backed by the “AAA-rated” paper they had purchased. Then the paper “poofed”–and so did the economy (and the GSEs).
The investment houses/banks are the focus.
But in 2008 it was mortgage debt.
This time it may end up being US paper.
Ouch! That just hit me.
Cheap credit may have been a factor, but it’s about 4th or 9th in importance. This article does a decent job of laying it out
- Immoderate investments
- Loose lending standards
- Subprime mortgages with balloon payments
- Low interest rates
- Risky Wall Street behavior
- “New” securitization packagees: CDO’s, etc.
- Unsecured collateralized products
- Weak watchdogs
*10. And finally, market pullback revealing skeevy practices all up and down the chain.
- Weak watchdogs
I would add Citizens vs United to the bottom of your list as a no. 11.
That was handed down post mortem Housing Crisis and Credit Crisis.
That decision was handed down in 2010 and opened the flood gates to all the lobbyists and their big money destroying politics.