To get back on point I think the case I rpesented albeit an extreme example shows why the federal government should be in the mortgage market. I wouldnt expect a small community bank or even a large one to have to underwrite low down loans. However, should a federal government that is collecting 6 figures tax payments now and for the next 30 years from an individual like that not owe them the ability to get a 30 yr fixed rate mortgage at market rates with a minimal down payment? I think they do. Even if the borrower were to default the government would more than recover any losses through PMI and future tax collections.
