Back in May I wrote a column about potential circumstances that could stem the housing market’s decline. The bulk of the article dealt with the many and varied ways that the federal government could attempt to keep home prices propped up. My opinion hasn’t changed much since then, so to avoid rehashing the entire thing here I recommend that those with hazy memories check out the original piece. (I know I had to — I can’t remember what happened a week ago, let alone seven months ago, as all my memory cells are apparenty filled to capacity with a knowledge of early-1980s television that is as vast as it is useless. I don’t think I’ve been able to form a long-term memory since Manimal was cancelled).
Well, not even a year has passed and the government has jumped with both feet onto the bailout bandwagon. The Federal Reserve, those guys and gals who are ostensibly charged with maintaining the soundness of our currency, have slashed interest rates despite serious weakness in the dollar. In so doing they’ve demonstrated that preserving price stability is lower on the priority list than giving a boost to the housing market. How well it will work is another question, considering that higher inflation would bring a new set of challenges, but they’re going for it nonetheless.
Fed head Ben Bernanke then proposed that government-sponsored mortgage securitization giants Fannie Mae and Freddie Mac should have their debt explicitly guaranteed by the taxpayers and that they should be able to make loans up to $1,000,000 instead of the current limit of $417,000. Many other people have proposed raising Fannie’s and Freddie’s loan size limit, in fairness, though few have been bold enough to suggest that someone buying a $1,000,000 house should be entitled to what is effectively a government subsidy.
The big news of late, however, is that Treasury Secretary Hank Paulson is putting together a plan in which some borrowers who took out adjustable-rate loans will have their rates frozen at the initial "teaser rate" so that they can continue to stay in the homes that, strictly speaking, they could never actually afford in the first place.