You might have thought it was a good idea when the government started taking all the profits of the Federal National Mortgage Association (FNMA, or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac).
After all, the two quasi-private mortgage insurance giants had sucked a lot of profit out of the markets over the decades, and then required over $180 billion in bailout money from taxpayers. Why not get a little of the bailout cash back, right?
Well, we did. As I’ve written lately, the U.S. government has recouped all of the bailout money and then some, to the tune of an additional $40 billion. So far, so good. But now the government, through the Federal Housing Finance Agency (FHFA), which oversees the twin behemoths, has another plan.
As usual with a government plan, this one has a few holes.
In addition to squeezing out every last buck the companies generate and sending it as a gift to the U.S. Treasury, the FHFA wants Fannie and Freddie to back more loans to low-income borrowers and landlords that rent to low-income families.
Since the FHFA is the overseer of these two companies as long as they remain in conservatorship, what the housing agency wants, the agency gets. So we can expect Fannie and Freddie to instruct banks that they will buy loans proportionally, meeting the goals laid out by the FHFA.
At least 24%, or roughly one-in-four, of the loans they buy will be to families that earn 80% of the median income for the area or less. Hmm.
The median household income in the U.S. is roughly $52,000. 80% of that is $41,600. So the government is telling the mortgage giants that a quarter of their new loans have to be to families earning $41,600 or less. Obviously the number is higher in areas where the median income is higher, like urban areas, but the point remains the same.
If this family brings home 100% of its pay – no taxes, no nothing taken out – then it earns about $3,500 per month. If 30% (the industry guideline) of this pay is devoted to housing, then the family can spend $1,050 on their home.