I attended last month’s V&C event “Left, Right and Christ,” and there’s one characterization by Lisa Sharon Harper that I’m still stuck on. She repeatedly spoke about the ability of public policy to “bless” and “curse” certain populations—and expressed hope that blessing everyone was a feasible policy goal. It’s hard to find a policy that doesn’t help disprove this sentiment. Here’s one of the latest: The Federal Housing Administration. During the housing crisis, the Federal Housing Administration (FHA) became the primary lender for mortgages by taking on enormous risk. The latest research from Joseph Gyourko* of the Wharton School projects that by time it’s all sorted out, it will require a $50-$100 billion taxpayer bailout (and those calculations optimistically assume that unemployment won’t rise and housing prices won’t fall). Blessing for everyone? With American taxpayers looking another hundred billion dollar hole in their accounting book, they should feel downright cursed. But how about a blessing for the right populations? This claim is the one that might carry some weight. The FHA was created by FDR during the Great Depression to:
“insure loans made by banks and other private lenders for home building and home buying. [Note: Yes, I am going off Wikipedia here, but you can find pretty much the same info in Gyourko’s paper.] The goals of this organization are to improve housing standards and conditions, provide an adequate home financing system through insurance of mortgage loans, and to stabilize the mortgage market.”And an all-out effort was certainly made to stabilize the markets:
“In 2007, FHA insured the mortgages of just 6 percent of new home purchases. By 2010, it insured 30 percent. Its insurance guarantees tripled from $305 billion in 2007 to more than $1 trillion today. Meanwhile, its capital reserve has fallen perilously low—to less than one-third its required level.”On face, there might be a “blessing” for those able to buy houses with little-to-no money down. An enormous amount of people had the opportunity to secure what is considered an important part of the American dream. But now, it turns out a number of those loans went to relatively high-risk borrowers. Yes, the housing market being stabilized, but it was done in large part on the backs of individuals who will likely default in the future, but were enticed to believe they could afford the house by deceptively low up-front costs. And so another well-intentioned policy has “cursed” the vulnerable population it was supposed to aid (on top of stealthily adding about $100 billion onto America’s tax bill). *Joseph Gyourko will be presenting his research at an AEI event on Capitol Hill Friday, December 9th.