Because What Could Go Wrong With Government-Backed, Low-Interest, No-Money-Down Housing Loans?

Can we get government out of the goddamned mortgage industry, already? Your latest demonstration that the federal government is incapable of learning, care of The Washington Independent:

"Buy new with $1,000 down," the advertisement says, the words resting atop a trim green clapboard house offset by a bright blue sky. "The time has come. Stop wasting rent check after rent check and start building equity in your own home. And with only $1,000 down, affordable monthly payments and no private mortgage insurance required, the dream is closer than you think."

It sounds too good to be true. But it is true. This offer does not come from a subprime lender, looking to reel in thousands of unqualified and ill-advised homebuyers, only to slap them with add-ons, fees and variable rates. It is not a teaser or a trick. The advertisement references a program initiated by the National Council of State Housing Agencies and Fannie Mae, the taxpayer-backed, government-sponsored enterprise that buys up mortgages from lending banks. [...]

Now, qualified homebuyers in the three states pioneering Affordable Advantage do not need to put down the 3.5 percent minimum down payment required by the Federal Housing Administration, or much of a down payment at all. They can get 100 percent financing — a loan as big as the purchase price of the house — for a 30-year, fixed-rate mortgage — a vanilla mortgage. The deal includes a program to help homebuyers if they become unemployed, lowered fees and there is no requirement that the homebuyer purchase mortgage insurance.

Comments Megan McArdle: "The important thing [...] is that this is how the government thinks about housing."

Link via Glenn Reynolds. Reason on housing policy here, including Tim Cavanaugh's before-the-TARP-was-dry "Houses of Pain: When did declining home prices become politically intolerable?"

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • kinnath||

    No Money Doan ???

  • waffles||

    No, Money Down!

  • Tim||

    Does that mean I need to put money down?

  • Chris and Barney||

    Can we get government out of the goddamned mortgage industry, already?

    No.

  • Old Mexican||

    They [people who apply] can get 100 percent financing — a loan as big as the purchase price of the house — for a 30-year, fixed-rate mortgage — a vanilla mortgage [from the government-backed entity].

    Yet it was supposedly the greedy banks that enticed poor and ignorant folk into buying houses they could not afford. Such is the beauty of the double-standard.

  • Chinny Chin Chin||

    We are all predatory lenders, now.

  • PR||

    there is no requirement that the homebuyer purchase mortgage insurance.

    that's because no one will sell it. Fannie Mae and Freddie Mac weren't the ones who discontinued 100% financing in 2007. The mortgage insurance companies stopped insuring these loans, effectively ending the programs for them.

  • Jeffersonian||

    Gee, I wonder who'll be on the hook when these new buyers default. Can anyone take a guess?

  • Barney Frank||

    Not me. I'm untouchable.

  • Herb Moses||

    I love it when you play hard to get.

  • Barney Frank||

    Buy me a drink, sailor?

  • Herb Moses||

    Sure, big boy. Can I push in your stool?

  • ||

    Thanks for the visual.

  • Barney Frank||

    Ewww!

    And yes, you may.

  • ||

    WTF? Hit-and-Rut won't let me post, saying I'm a spammer. So no snarky comment from me on the topic of stools.

  • U.S. Taxpayers||

    Shit.

  • Anonymous||

    That's what he said.

  • Barry O||

    Clearly it will be free market failure.

  • robc||

    Fannie Mae and Freddie Mac weren't the ones who discontinued 100% financing in 2007. The mortgage insurance companies stopped insuring these loans, effectively ending the programs for them.

    Maybe Fannie and Freddie should consider this then and start requiring 20%.

  • destiny||

    with all these econemy issues going on in the world how do we know america will be able 2 pay for its debts the more money borrowed?

  • ||

    Like a compulsive gambler, this administration thinks it can get even with the house.

    Since the Fannie and Freddie debacle first started to unfold (fall 2007) I've been screanming "Just take your goddam losses and get the fuck out of the game".

    If the Treasury Department thinks housing prices have hit bottom* they've got a serious cas of cranial-rectal inversion.

    * They would have had my advice in late 2007 been followed.

  • Chase||

    I have come to believe that even the "genius" ecnonomists in the Obama administration have no idea how an economy actually functions. They see the economy as a set of statistics: GDP, unemployment, jobs gained or lost etc.

    Since improving those numbers - not actually increasing our standard of living - is their goal, they see re-inflating the bubble as the easiest way to achieve economic success.

  • Jeffersonian||

    They see economics the same way marxists see human nature: as infinitely malleable. They will *remake* economics in their image.

  • von Mises||

    Told you

  • creech||

    Why doesn't the govt just send a $1mm check to every household and be done with it?
    (sarc)

  • robc||

    You are joking, but my plan for TARP money was basically that.

    Not that I supported TARP but if we were going to do it, I would have done it this way:

    Every US citizen age 18+ on Jan 1 2009 gets a credit for $TARP/X where X is the number of 18+ us citizens. The credit could be used in the following order:

    1. If behind on mortgage, it must be used to get current OR you do a voluntary foreclosure.

    2. If you have a mortgage (and its current thanks to step 1, if necessary), the credit is used to pay down principle on mortgage OR voluntary foreclosure (if so far underwater that paying down isnt worth it - this really only applies in non-recourse states).

    3. Any remaining credit (for those who had little or no mortgage to pay down) must be used to pay down any other consumer debt, car, credit card, etc. OR Bankruptcy must be filed (and bankruptcy court will apply the credit as necessary).

    4. If you are debt free, you get a check from the government.

    Gets money to banks, reducing risk on many of the bad loans. Pulls some of those people who were on the border between losing home/making it to the positive side. In general, it exchanged consumer debt for government debt, which wouldnt be my preference, but would have been a better way to spend the TARP money. Forget exact numbers, but think that works out to about $10k per adult, so many households would have been able to throw $20k at their mortgage principle. That knocks a number of years off many people's 30 year mortgage, if nothing else.

    yeah, yeah, they might have just atmed it back out of the house, but banks were tightening up standards, so maybe not.

  • ||

    That actually sounds like the best way to do it if there are going to be handouts. Just give the money directly to people rather than funnelling it all over the place. Much more efficient.

  • Joe M||

    The funneling is the most important part! How else are the intermediaries gonna get their cuts?

  • Congresswoman Waters||

    Finally, someone gets it.

  • Invisible Finger||

    robc,

    If you've read you're Austrian economic, you know that the greatest benefit of "new money" goes to the first recipients.

    That is why households will be the LAST place new money ever goes to. Banks will always get it first. That was the entire reason the Federal Reserve system was created.

    The only group that believes in the lunacy of trickle-down (aka top-down) economics more than Republicans is Democrats.

  • Zeb||

    I thought they should have just thrown $100 bills out of helicopters until all the money was spent, but I like your idea even better, robc. I am pretty sure either option would have done more good than what has been done with the money.

  • ||

    Nice, section 8 housing for stand alone units.

    Well if they can't raise taxes, they can find other ways to fuck over those with money.

  • Johnny Longtorso||

    Why doesn't the govt just send a $1mm check to every household and be done with it?

    Then everyone would be a millionaire and thus evil.

  • Fist of Etiquette||

    Why does Reason want so desperately to keep minorities from owning homes?

  • Jeffersonian||

    Say it!!

  • ||

    Let's be honest, they'll never "own" it, they're just being subsidized for renting something their natural ability to afford.

  • Suki||

    +1

    Don't forget women and gays.

  • ||

    Yesterday, some cretin was on CNBC bleating about the horrible spectre of deflation stalking the land. He used House prices as Exhibit A.

    A price shock is not deflation.

  • ||

    Given how much debt built up, deflation was inevitable. Bubbles pop and deflate. That's what's happening.

  • BakedPenguin||

    No, lower prices in the bubble area were inevitable. Deflation is a monetary phenomenon.

    /pedant

  • ||

    Ok, so technically it is a monetary phenomenom, but the results of which are only evident in asset pricing. When debt replaces money in the market place and that debt load starts to unravel, deflation occurs until debt load in the economy comes back to managable levels. Economists can argue to and fro about how to soften the landing, but it does and is happening. Instead of stocks (the last debt deflation trigger), its assets this time around.

  • robc||

    since the Fannie and Freddie debacle first started to unfold (fall 2001997)

    FTFY.

    Not sure on exact year, but close enough.

  • Invisible Finger||

    Actually, F&F were fairly consistent in sticking to their mandate until the public pension funds (their largest shareholders) started whining in 2003.

  • robc||

    They had some 90s debacle that had nothing to do with not sticking to their mandate.

  • AlmightyJB||

    Highjack

    Krugman calling Paul Ryan a "charlatan"

    http://www.nytimes.com/2010/08......html?_r=1

  • ||

    That ought to help Paul's chances.

  • ||

    He’s often described with phrases like “intellectually audacious.” But it’s the audacity of dopes.

    Oh, Paul, I love it when you get all ad hominem.

  • Paul Krugman||

    The Ryan plan is a fraud that makes no useful contribution to the debate over America’s fiscal future

    unlike, um, unlike ...

  • BakedPenguin||

    What an asshole. The only problem with Ryan's plan is that it's too tame and cuts too little.

    Dying in a car crash is too kind a fate for Krugabe.

  • Jeffersonian||

    I'd like to see him swarmed by scarab beetles like that weasely dude in "The Mummy."

  • ||

    Can we have him be chased by a mob of fast zombies before all that?

  • waffles||

    OH, how I hate fast zombies!

  • ||

    Possums could gnaw the meat off his pelvis.

  • Jason||

    How about crushed underneath a pile of money while on a visit to the BOPE?

  • ||

    One depressing aspect of American politics is the susceptibility of the political and media establishment to charlatans. You might have thought, given past experience, that D.C. insiders would be on their guard against conservatives with grandiose plans. But no: as long as someone on the right claims to have bold new proposals, he’s hailed as an innovative thinker. And nobody checks his arithmetic.

    One of the most blatant cases of projection I've ever seen.

  • smalls||

    Highest rated comment from the article:
    "Reality: There is no Social Security crisis. By 2023, Social Security will have a $4.6 trillion surplus..."
    No source cited of course.....but the other commentors seem to love it. Seriously, these people can literally say anything they want and their readers/followers will eat it up.

  • Corduroy||

    I'm going to have read this one for myself.

  • Corduroy||

    Having now read the comment, we're DOOMED, DOOOMED I say.

    A nation of idiots.

  • ||

    With fiat currency, and the Fact that our money is created out of thin air, I have no doubt that SS will have a surplus of 4.6 trillion dollars.
    The VALUE of the 4.6 trillion dollars is how much heat burning 4.6 dollars generates. Thats really a lot of paper, so it is probably worth...o, I dunno:
    http://www.dailycognition.com/.....bills.html

    So, I would say that must be several thousands of dollars worth of paper.
    Of course, the actual value divided by the number of recipients means that each retiree gets the value of...1 budweiser.

  • ||

    SS might well have 4.6 trillion on the books in 2023, but that doesn't mean that the money will actually exist.

  • ||

    LOL, yeah right, tell me about it.

    Lou
    www.web-privacy.at.tc

  • Frat Boy||

    I used to party with your brother Mike.

  • ¢||

    Yet it was supposedly the greedy banks that enticed poor and ignorant folk into buying houses they could not afford.

    Almost everyone who blames the banks does it like a dipshit, but Big Bank does lobby in favor of these kinds of things, presumably in expectation of bailouts when the "market" gets fucked up from them.

    Or! Do they fake-lobby for these things, even going so far as to fund fake-lefty cutouts like ACORN Housing who fake-pressure them into fake-lobbying for these things, in exchange for bailouts? The shooters don't even know!

  • Old Mexican||

    Almost everyone who blames the banks does it like a dipshit, but Big Bank does lobby in favor of these kinds of things, presumably in expectation of bailouts when the "market" gets fucked up from them.

    Well said.

  • ||

    Random capitalization makes me feel like Ben Franklin.

  • Geotpf||

    I don't think I've posted my favorite bubble house example here yet. I'm sure you will all get a kick out of it.

    http://www.redfin.com/CA/Palm-.....me/6044258

    398 West Palm Vista Drive, Palm Springs, California

    Sales record:

    Jun 28, 2001 Sold (Public Records) $36,000
    Oct 06, 2003 Sold (Public Records) $119,000
    Jul 30, 2004 Sold (Public Records) $200,000
    Sep 20, 2005 Sold (Public Records) $350,000
    Sep 22, 2006 Sold (Public Records) $450,000
    The bank forecloses on the house in late 2008, and after ten price reductions, eventually manages to sell it for...
    May 04, 2009 Sold (MLS) $32,375

    Oh, and check out the drug deal in progress a block north of the house that was caught by the Google Street View cameras.

  • robc||

    I was just thinking "but you post it here all the time". Then I realized this wasnt fark.

  • Geotpf||

    Yeah, I've posted this on fark about five times (got a green light with it once even).

  • robc||

    Five?

    Either I saw them all or your off by an order of magnitude or two.

    Or someone else was posting it.

  • dave b.||

    How do you two survive there? Fark is more liberal than both Slashdot and Digg.

  • Corduroy||

    More liberal than Slashdot? Impossible, that would require a complete non-presence of any conservative or libertarian thought.

  • robc||

    a complete non-presence of any conservative or libertarian thought.

    Most of the fark conservatives have never had a thought in their lives, so that is covered.

  • robc||

    I gave up the politics tag in 2008.

    Business and Sports tags mostly for me. Even in the business tag, mostly just the housing threads.

    Plus I got my first greenlight recently!!!!

  • Ted S.||

    Am I the one person who thinks the Fark slashes are dumb and unfunny?

  • ||

    Nice.

  • robc||

    And its not a drug deal, someone was lost and stopped to ask for directions.

  • Geotpf||

    From the three nice gentlemen on the street corner wearing big jackets.

  • robc||

    And any money that changed hands was merely a tip for the service provided.

  • ||

    I should buy a house. I mean, I'm being fucked by the government anyway, why shouldn't I get in on the scam?

  • the government ||

    You'd be a fool not to.

  • ||

    Ah, so this is that socially democratic markets thing I keep hearing about in newspaper article comments.

    Sounds like a real productivity generator!

  • ||

    You're straight, bone-white, make money in a private sector without unions, and haven't flushed your life away with laziness.

    The government doesn't give a shit about you.

  • ||

    I normally would be pretty brown right now, but the summer here in Seattle is so shitty that I can't even pretend to be a minority. It's a cosmic conspiracy! Also, Rubicon is pretty shitty too.

  • ||

    That is how I feel. I am about ready to go get a no down on some McMansion I can't afford and then just refuse to make payments on it. Fuck them. It will take them two years at least to get me out of the house. In the mean time I can save the $2500 a month I am spending on rent. In two years I can walk off with $60,000 plus interest in the bank and they won't be able to touch me because it will be a no recourse loan. And just for kicks I will call the Washington Post and let them run a story about another poor home owner losing the American dream. And if I am lucky Obama will get desperate enough before the 2012 election the dumb bastard will forgive my student loans.

    Fuck it, if you can't beat them join them.

  • ||

    Forget the McMansion, the bills to heat and cool it and the furniture to make it worthwhile would be rediculous. Go get a bitchin bungalow in midtown of a major city of your choice and then don't pay on that. That way you live right next to the heart of a awesome city and your bills are cheap anyway.

  • ||

    Yeah, I could do that right here to. Either way, I am honestly not seeing how it pays to be an honest person. I have too much shame to do it. But from a strictly rational perspective, there really isn't a downside.

  • robc||

    Your credit would be ruined, so be prepared to live on cash for the next 7 years.

  • ||

    No it wouldn't. If I didn't declare bankruptcy and paid all of my credit card debts, I would still have those cards. And I know people just out of bankruptcy or credit counseling that have gotten car loans. It would just mean I couldn't buy a house. BFD. I can't buy one now. And I am a veteran. If I didn't default on a VA loan I bet I could get VA loan even after I had defaulted on my Freddie no down loan.

  • robc||

    Foreclosure takes a big chunk out of credit score. Your CC cards would probably just lower limits, not go away entirely, but some might raise rates. Which is no biggie, if you are paying them off anyway.

  • ||

    "...I have too much shame to do it..."

    Moral hazard, such a quaint notion.

  • Section 8 Queen||

  • ||

    I am slightly upside down in a condo and know how you feel. It would be easy to say fuck it and just refuse to pay the mortgage and HOA dues and live there for free for 1-2 years and then walk away. But I'm not upside down enough to justify the damage to my credit rating, let alone the emotional stress and loss of self-respect such behavior would cause.

  • Solanum||

    Look, buddy. I know a lot about the law and various other lawyerings. I'm well educated. Well versed. I know that situations like this- real estate wise- they're very complex.

  • Johnny Longtorso||

    Pardon the blog-whoring:

    The Cause of the 2008 Mortgage Crash

  • ||

    Then don't do it.
    Blog pimping is so declasse.

  • ||

    If you want government to intervene domestically, you're a liberal. If you want government to intervene overseas, you're a conservative. If you want government to intervene everywhere, you're a moderate. If you don't want government to intervene anywhere, you're an extremist. – Joseph Sobran (1995

  • Old Mexican||

    "The time has come. Stop wasting rent check after rent check and start building equity in your own home. And with only $1,000 down, affordable monthly payments and no private mortgage insurance required, the dream is closer than you think."

    Fuck the renters! Let's buy a house with a mortgage backed up by the taxes levied on them, so they can be screwed twice!!!

    Gotta love that fascism!

  • ||

    Stop wasting rent check after rent check and start building equity in your own home.

    Wait, wasn't that the fucking problem? Either way, mortgage payments sounds an awfully lot like rent.

  • Renter 4 Life||

    That's what I was thinking. Mentally, I rationalize the $1000 mortgage as "rent", enabling me to walk away at any time without sense of a "lost" investment. Since there will be no equity for the first 5 years or so, I get to "rent" a house instead of an apartment....

  • ||

    Yes you rent the house from the bank, but you are responsible for the property taxes, maintenance, and repairs.

  • ||

    Deflation is a monetary phenomenon.

    Exactly.

    And a sudden spike in wheat prices because the Russians have halted exports is not "inflation", it's a price shock.

  • Tim||

    Who wants radioactive bread?

  • ||

    True. A price-shock is simply a disturbance in the supply demand equilibrium that is immediately apparent. On the other hand, monetary inflation is itself a disturbance in the supply demand curve that is not always immediately apparent.

    Sometimes I sound like I actually know what I am talking about.

  • ||

    posted my favorite bubble house

    That is fucking awesome.

  • ||

    The government doesn't give a shit about you.

    Not true!

    They want his money, so they can give it to some deserving misadvantaged deadbeat.

  • ||

    That reminds me of a particularly idiotic conversation with joe I keep trying to pull out of the archives (it might be in The Dead Zone of lost content that time the server crashed.)

    joe contended that taxes weren't collected under threat of force because you didn't go jail for not paying your taxes, but rather for lying to the IRS.

    Sometimes his bullshit was pure art.

  • ||

    My favorite Joe-schpiel was when he said that Al Gore's economic policies had ended the economic cycle and recessions were now impossible. I was literally speechless.

  • ||

    You actually remember distinct *ahem* conversations with him?

    It's all a white noise blur of endless smug and chest thumping to me.

  • ||

    It's a curse. I never forget anything offensive.

  • Barely Suppressed Rage||

    That gives you a lot to remember just from this place alone.

  • T||

    Given that if you simply don't file, they'll still come after you sooner or later, that's just not true.

  • robc||

    Its not true, but the criminal part is not filing. If you file CORRECTLY, not paying is just civil, they will lien/seize your stuff, but you wont go to jail, IIRC.

  • Brett L||

    So you get the Redd Foxx treatment and not the Wesley Snipes? Great.

  • Tim||

    "Stop wasting rent check after rent check ..."

    But, the gubmint pays my rent.

  • ||

    It's Obama money!

  • ||

    When banks do this, it's called "Predatory Lending". So when Obama does it, it's called...?

  • Jeffersonian||

    Reelection

  • ||

    24 carat idiocy, wrapped up in a shiny bag of stupid.

    You couldn't make this stuff up, really. How can he simultaneously blame greedy banks and risky loans, while at the same time rebirthing the low doc, nothing down home loan?

  • ||

    In all seriousness, while we may be coming up on a deflationary period, I don't think anyone expects it to last all that long, and to be followed pretty quickly by some nasty inflation.

    Inflation punishes savers, and rewards debtors by allowing them to pay off a fixed debt with ever-cheaper dollars. I could pay off my house today, but I'm hanging onto my mortgage because once inflation starts up again, I will be paying what amounts to a negative interest rate on it.

    So, go out there, buy a house with a loan you can afford, and use it as a good inflation hedge. No need to default and squat in the bank's house; you'll do just fine once the double-digit inflation hits.

    My over-under date for inflation really kicking off is mid-2012, which isn't that far away.

  • ChrisO||

    I'm worried it's going to start well before that. U.S. fiscal conditions seem to be deteriorating fast. We're not going to end up with Japan's "lost decade." We're going to end up like Argentina.

    And yes, I'm busy working on that "house as a hedge" thing, so I would appreciate the hyper-inflation holding off a bit longer...

  • Jason||

    And if you don't get a raise every year greater than the rate of inflation, you're getting a pay cut.

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