Have they not learned anything?
The taxpayer-supported Wisconsin Housing and Economic Development Authority is promoting “no-money-down” home mortgages.
As they proclaim in this new radio ad:
“WHEDA…We do…So you can buy your first home with no money down! Coming up with a down payment prevents a lot of renters from becoming homeowners. That’s why WHEDA created the Advantage Home Loan. With the Advantage Loan, you don’t need a down payment.”
Are they serious?
From their website: Learn more about how you can get into a home with a mortgage you can afford long-term with no money down and very little cash to close.
WHEDA is promoting the Advantage program in spite of the fact that from October 2008 to February of this year the agency actually stopped issuing mortgages for single family housing in the wake of the credit crunch which was created when the housing bubble burst.
From a 2008 press account.
Wisconsin’s affordable-housing agency has temporarily stopped issuing mortgages for single-family homes because it’s having trouble raising the money needed to make the loans —a situation it said is a direct result of the national financial system crisis.
It’s the clearest evidence yet that the crisis on Wall Street is hitting Wisconsin’s Main Street.
“We primarily operate with tax-exempt mortgage revenue bonds. That’s what funds our mortgages. And right now, we can’t raise capital. There’s nobody investing in those bonds,”said Kate Venne, spokeswoman for the Wisconsin Housing and Economic Development Authority.
It is the first time in the 30-year history of WHEDA, which works through local lenders to offer below-market interest rates to first-time home buyers who have low and moderate incomes, that it has suspended its mortgage lending program because of liquidity problems.
But now WHEDA is back with a vengeance.
Who is making this new WHEDA Advantage program possible?
None other than Fannie Mae.
Yes, that Fannie Mae. Really.
For those who need a refresher course: Here is how the Heritage Foundation explains Fannie Mae’s role in the housing crisis:
Fannie Mae and Freddie Mac do not actually lend money to borrowers. Instead, they make their money by purchasing loans, bundling them together and then selling them as mortgaged back securities. Due to their quasi-government status, Freddie and Fannie are exempt from state and local taxes and can borrow money at lower rates than their competitors. With these advantages, Freddie and Fannie have cornered the market on mortgage securitization. Most years, Freddie and Fannie help finance 40% of all U.S. mortgages. In the first quarter of 2008, they handled 80% of the market. If Fannie and Freddie were private entities, they would be a considered a monopoly by Department of Justice anti-trust guidelines.
Fannie and Freddie are neck deep in the subprime industry as well. In 1995 Fannie and Freddie convinced the Department of Housing and Urban Development (HUD) to let them get affordable-housing credit for buying subprime securities that included risky loans to low-income borrowers. In 2003 Fannie and Freddie bought $81 billion in subprime securities. In 2004 they bought $175 billion —
44% of the subprime market. Now Fannie and Freddie are in the same financial hole as Countrywide. They suffered $9 billion in mortgage-related losses last year and are sitting on another $19 billion in additional losses they have not yet fully acknowledged.
Conservatives have been pushing for fundamental reform of Freddie and Fannie for years. Long before the subprime crisis became apparent, conservatives warned that “their commanding presence exposes U.S. financial markets to excessive risk and instability.”
Since September 2008, Fannie Mae and its sister organization Freddie Mac have received a combined $145 billion in emergency funding to cover their investments. Together, propped up by our tax dollars, the two behemoths control upwards of $5 trillion in mortgage debt.
So when Fannie ‘partners’ with WHEDA, just consider it your right pocket partnering with your left; pouring more tax dollars into a dubious program and failing to learn from the mistakes of the past
Here’s a newsflash: Home ownership is not a right–it is an investment strategy, complete with benefits and risk.
You cannot eliminate risk from investment. You can mitigate risk. You can reduce your exposure to risk. You can transfer risk to someone else. But you cannot eliminate risk. In the case of the housing bubble, taxpayers absorbed the risk…and paid dearly.
False promises of risk-free investments in home ownership played a crucial role in this country’s Great Recession. Politicians like Barney Frank (D-Massachusetts) and Chris Dodd (D-Connecticut) used the coercive force of government to ‘encourage’ lenders to ignore would-be home buyers’ ability to make good on their obligations when making loans for first time home purchases. (In the early 2000’s these ‘defenders of the poor’ demanded these programs. Now they call such efforts predatory lending.)
As the result of getting lines of credit they did not earn by merit (via an analysis of credit rating, available assets, income stream, ability to repay loan), people defaulted on these mortgages. Banks ate the losses. Investments based on the securitization of those mortgages crumbled. While people can argue over the appropriate underwriting standards and the strength of government oversight of these securities, you can’t deny the fact that they were undermined by the fact that people defaulted on loans they could never afford.
The economic instability that came about in the wake of the burst of the housing bubble severely hurt WHEDA to the point they could no longer help first-time home buyers for more than a year. That is until, like so many other entities over the last two years, they were bailed out by taxpayers.
Last year, WHEDA got back on its fee with the infusion of massive amounts of tax dollars. They received $139 million in American Recovery and Reinvestment Act (Stimulus) funds to for the Low Income Housing Tax Credit developments around the state. WHEDA further received $325 million from the US Treasury to “revitalize its home ownership programs.”
So, thanks to an infusion of hundreds of thousands of dollars of tax dollars and the support of the ‘too big to fail’ Fannie Mae, WHEDA has decided to double down on the ‘Hey you don’t have to work for it, why worry?” mentality.
WHEDA. They do (make mistakes), so you can too!
In fact, WHEDA boasts, renters who can not afford any down payment on a home loan can take advantage of the misfortune of their peers who had earlier ventured into home ownership while ill equipped to do so.
“The loan can be used to purchase a foreclosed and vacant single family home and finance limited home repairs,” proclaims the WHEDA website.
The cycle continues.
WHEDA notes that the new no-money-down required program is only available for a limited time.
The program is available for a limited time, but apparently when it comes to pouring gasoline on the housing fiasco fire, stupidity is perpetual.
By Brian Fraley
A MacIver Institute Perspective