Thomas Aiello – Taxpayers Should Not Guarantee Million Dollar Homes


The COVID-19 pandemic may have permanently altered the way Americans work, shop, and live. Yet despite the fundamental change and the uncertainty of the economic future, the US real estate market has remained strong and reliable. Driven by low interest rates combined with strong demand and limited supply, the median selling price of homes over the past six quarters has risen from $ 322,000 to $ 405,000, an increase of over 25 %. The high prices don’t even scare home buyers, as the National Association of Realtors estimates 6 million home sales this year, the highest number since 2006.

The rapid appreciation in house prices is good news for homeowners, but sadly, policy changes in Washington affecting Fannie Mae and Freddie Mac amount to subsidies for million dollar homes and expose taxpayers around the world. whole to heavy losses. Fannie and Freddie are the two federally funded companies that buy billions of dollars in mortgages from lenders and repackage them, either to sell them to investors or to keep them in their own portfolios. As it stands, taxpayers face approximately $ 6 trillion in mortgage risk, or about half of the entire residential mortgage market.

In order for Fannie or Freddie to buy a mortgage, the actual loan must meet a series of criteria, such as a certain credit score, minimum down payment, debt-to-income ratio, etc. One of the more controversial rules is the “compliant loan limit,” which is the maximum dollar amount on the size of a mortgage that government-sponsored companies are allowed to buy or guarantee. In most areas of the United States, the compliant loan limit is $ 548,250, but in expensive areas, the maximum loan amount is $ 822,375 for 2021.

Fannie and Freddie’s regulator, the Federal Housing Finance Agency, recently significantly increased the compliant loan limit for the upcoming calendar year in response to rising house prices. On November 30, the FHFA announced that Fannie and Freddie would be allowed to purchase mortgages from lenders as long as those loans remain below $ 647,000 and $ 970,800 in “high cost” areas. These new limits are up sharply from 2021 loan limit levels and represent an increase of $ 98,000 and $ 150,000 for referral and high cost areas.

Originally, government sponsored businesses were created with the noble mission of promoting home ownership for low and middle income buyers. Still, supporting homes worth nearly $ 1 million – especially in high median income areas – defeats their original mission. In many ways, the fact that government sponsored companies guarantee million dollar homes distorts the market while adding significant and unnecessary exposure and liability to taxpayers. In addition, subsidizing the ability of the rich to buy lavish homes is bad policy and could be largely managed by the private sector, as is already the case in the jumbo market.

The high cost loan limit is an unnecessary subsidy for the rich that does not encourage home ownership among low and moderate income households. The new loan limit for high-cost areas means government-sponsored businesses can get involved in larger mortgages, up to 27 times the median income of each individual in the United States. Some argue that increasing compliant loan limits is good policy because it ensures that home ownership remains affordable for working class families. But people choose to live in areas with high house prices, typically have higher incomes, and can afford as-is housing. No one can reasonably argue that the fact that taxpayers guarantee $ 1 million in housing is a problem for the working class.

Unfortunately, these higher loan limits will put more strain on taxpayers, but will not help them. Raising the maximum loan limit means taxpayers will be forced to take out even more mortgages and face even greater losses if those borrowers default on their obligations. Gradually lowering compliant loan limits would reduce risk to taxpayers, end a subsidy for high-income borrowers, and allow government-sponsored businesses to focus lending on those at the bottom of the income ladder. income. In doing so, the US housing finance system will become a largely private market without adding liabilities to taxpayers.

While a fundamental overhaul of government-sponsored businesses by Congress remains unlikely in the near term, there are many reasonable steps that lawmakers can take to ensure that the market operates efficiently, that taxpayers are protected, and that accession to the economy. property remains affordable. An important step would be for Congress to remove the high cost zone compliant loan and gradually reduce the overall loan limit.

Thomas Aiello is Policy and Government Affairs Associate with the National Taxpayers Union. He wrote this for


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