More Mortgage Follies

for rent

Fannie Mae is out with another ill-considered program to let foreclosed property owners rent their homes and once again Felix Salmon is giddy over the prospect.

Felix and I have been around the block on this one before. Here is a link to one post of mine which also has links to another post as well as to Felix’s posts.

I am curious, however, as to where the statutory authority exists that allows Fannie to potentially expend taxpayer funds on a program such as this. It seems that to the extent that Fannie chooses not to sell a foreclosed home and rent it to its former owner it is foregoing a significant chunk of change.

Presumably if the house was part of a collateral pool they will have to fork over some amount of money to the investors in that pool to make good on their guarantee. How they arrive at the proper amount to pay out is probably of more than passing interest to investors in MBS. If the loan was not securitized but held by Fannie in portfolio then the decision to rent it rather than sell will significantly reduce their revenues. Either way, the program would appear to further weaken Fannie’s already tenuous financial condition and most likely add to its need for more taxpayer support.

Sort of seems like a backdoor way of appropriating government funds, doesn’t it. Rather than Congress approving a program along these lines with the appropriate debate about the merits and the costs, the agency just implements it and the cost just becomes part of the black hole.

As a final thought, when I was writing about this and going back and forth with Felix, I also put up a post that in part noted that Arnold Kling had suggested we would probably be fooling around with schemes to cure the housing program for the next five years. Mr. Kling pointed out that it all resembled our futile attempts to deal with the oil crisis in the 1970s. We finally gave up that hopeless task and let the markets work just as we will eventually let the markets sort out housing.

Based on evidence to date, Mr. Kling appears to be exceptionally prescient.

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