But this misses the whole point of FNM and FRE and FHA. They are there to funnel money into housing demand, to make home prices higher than they would otherwise be. Since most voters own homes, and most voters really want to see their home prices high, not low, pols direct various institutions to do things that increase house prices. If they pulled the guarantee from FHA loans, pols would replace it with something else. If they didn’t, home prices would really collapse, and voters and banks would besiege Congress.
State governments also need home values high for property taxes. Realtors need them high for commissions. Banks need them high because they make more interest (as long as they don’t have to suffer the result of defaults).
What do you think will happen? A sudden return to sanity, 20% downpayments, and getting your mortgage from your local banker? Or more intervention, more chicanery, more government guarantees? Who stands to gain in each case?
