ML-Implode News - FHA Loan Expansion Heading To a Vote

Hundreds of thousands of minority and moderate-income home buyers would become eligible to get low-rate, low-down-payment mortgages insured by the federal government under an agreement struck yesterday in the Senate.

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The FHA typically insures mortgages of about $130,000 for qualified home buyers, who are required to make a down payment equal to only 3 percent of their loan amount. About a third of its customers are minorities. Most earn about $55,000 a year.

The Senate bill would lower the down payment requirement to 1.5 percent and allow the FHA to insure mortgages up to $417,000, which would broaden its reach to more-expensive housing regions such as the Washington area, said four congressional aides who spoke on condition of anonymity in advance of the Senate vote.

Brace yourself: it's ML-Implode rant time.

It is unfortunate that house prices got so high specifically because of non-use of FHA (among other factors)... but now they're basically just going to try to make them stick higher than they should be with this bill. That's not a solution! The cure for "frothiness" in bubble regions is to stop propping up the high home prices! The government never learns... or maybe the people never learn, and the government just does what is needed to get re-elected by them!

Any attempt to prop up prices specifically in regions like California or Boston or Florida simply furthers the disparity and wealth transfer between these regions and the rest of the country. And of course, it is taxpayers in general (including, notably, renters, such as most of these people should be) who will foot the bill for the inevitable defaults that happen anyway.

Anyone who thinks this will re-flate the bubble is misguided. Instead it will just spread the pain around, prolong the recovery, and fail to repair the broken aspects of our system. Oh well.

Relevant:

FHA Loan Expansion Heading To a Vote