The Housing Recovery Act…Is it Too Little, Too Late?
What will the impact of this new law be? Probably a lot. There was some media attention early on about this sweeping bill that President Bush signed last month. But since then the media has not really focused on it much. What was the intent of the legislation? Congress had big plans with the stated purpose of not a little thing; only stabilize the residential housing slump, fix the credit markets and help struggling homeowners keep their homes. The law authorizes the Feds to bolster Fannie Mae and Freddie Mac if they need it, juices up FHA loans and it creates a large tax credit for first time homebuyers. For funding purposes the law also increases the national debt level $800 billion to $10.6 trillion.
In order to understand the new law’s impact one needs to know a bit of history. Back in the 60’s the Feds established Fannie Mae and Freddie Mac to help start the secondary mortgage market that in theory makes mortgage rates lower. Later these agencies were privatized and sold and are now publicly traded companies. When one considers that there are about $10 trillion in residential mortgages outstanding and that Fannie and Freddie together hold about half of that amount it is easy to understand why this is a big deal. First it certainly makes government bigger and grants more government control over the housing finance sector. It is an increase of government activity and control for sure. But whether or not one likes more government or less it looks like the new law should start to have immediate impact at least in the short term.
The National Association of Home Builders say on their web site that the first time home buyer tax credit of up to $7,500 will have a significant positive, immediate effect on the housing market. The New York Times said recently quoting The National Association of Realtors there were some 2.5 million first time homebuyers in 2007. Apparently most of them would have qualified for the tax break. How many are there in 2008? God only knows. Still the tax credit is a potent incentive. The government’s promise to support Fannie and Freddie certainly adds strength at least in the short term even if one believes that fundamentally it is the wrong way in principal.
So did Congress and the President do a good thing by creating the law? I say a conditional maybe. In the short run it will probably help and accomplish some or much of its intended purposes. We may even start to see effect before the election. But all this focus on Fannie and Freddie and the real estate slump gave me pause to reflect and ask what are we really doing with this debt driven housing market? In principal is it better to have more mortgages on housing or is it better for people to pay their mortgages off and be debt free? Should the government bail out private companies like Fannie and Freddie? In the long run do we need increased FHA loan programs, which carry a government guarantee? In principal I think the answer is no. When people keep looking to the government to help them it’s not a good thing. Once you start it is very hard to stop. We simply need to remind ourselves that we need to look to God to help us, not government. He is an ever-present help in times of trouble! LORD help us!
Written by Scott Singletary, who can be reached at 770.310.5019 .
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