The disaster continues...

Fannie Mae, Freddie Mac, Now FHA

Housing Mess: A huge, government-run housing agency shows massive losses and needs a bailout. Fannie Mae? Freddie Mac? No. It's the Federal Housing Administration, in a bad case of financial-meltdown deja vu.
The FHA, which insures mortgages made by first-time buyers with low down payments, says it may need a bailout because it will have losses of — get this — $54 billion. And how did it lose all that? By backing home loans made to people who couldn't pay them off.
Where have we heard this before?
At a time when we talk routinely of trillion dollar deficits, $54 billion may not seem like much. But it's huge. Worse, it signals that the government, contrary to its repeated assertions of fiscal competence, is incapable of learning from its worst mistakes.
In the case of the FHA, as the Los Angeles Times notes, it doubled down on its bad bet. "This year alone," the Times found, "the agency has backed nearly 2 million mortgages worth at least $328 billion. It insured 21.5% of all new mortgages last year, up from fewer than 6% in 2007."
Wasn't it only a year ago that we were told Fannie Mae and Freddie Mac were leaking money like sieves and would eventually need $400 billion in federal help? Now we're told the FHA might need the same kind of help.
"It appears destined for a taxpayer bailout in the next 24 to 36 months," Edward Pinto, an FHA consultant who served as chief credit officer at Fannie from 1987 to 1989, told Congress Thursday.
In short, the government's part of the housing crisis hasn't ended; it has merely changed addresses.
Congress and the White House are pondering how they can up the ante on a stimulus that hasn't worked. They seem to believe that all that's missing is more money.
But how can you add $10 trillion to the nation's deficit over a decade and claim you're not spending enough? If you believe that the definition of insanity is when you keep doing the same thing while expecting a different result, this is literally insane.
We'll carry on with this madness until Congress, which oversees this mess, comes to understand that government control of markets is doomed to failure.
Why are we so pessimistic? Democrats, who control Congress, largely created this mess. It started in 1977, with the passage of the Community Reinvestment Act, a law that was bulked up in 1995 under President Clinton to increase minority homeownership — a laudable goal that misfired.
The Clinton White House aggressively pushed U.S. banks to make low interest-rate loans available to otherwise unqualified homebuyers. Fannie and Freddie got involved, buying up subprime loans from banks by the billions.
By 2000, the White House was trumpeting a $2.4 trillion expansion in home lending — the largest in history — to low-income households. Fannie and Freddie bankrolled it, and for a while it worked.
Earlier this decade, President Bush and the GOP-led Congress warned repeatedly about the dangers that Fannie and Freddie posed to our economy, but they were rebuffed.
Democrats led by Sen. Chris Dodd and Rep. Barney Frank steadfastly opposed stronger oversight or a shrinking of Fannie and Freddie. They threatened, blustered and bullied anyone who dared to disagree, and Republicans — easily intimidated and worried about being portrayed as racist and/or insensitive to low-income voters — didn't push the issue.
During all of this, the FHA was largely ignored. But, as Wayne Barrett of the Village Voice noted in 2008, HUD by 2000 had turned FHA "into a sweetheart lender with sky-high loan ceilings and no money down, and ... legalized what a federal judge has branded 'kickbacks' to brokers that have fueled the sale of overpriced and unsupportable loans."
By 2006, when interest rates rose and the housing market's decade-long boom came to an end, it became a brutal game of musical chairs. Fannie and Freddie were left standing with big losses, but so were many private banks. The FHA is now a member of this club.
It was this — not deregulation, not Fed policy and not President Bush's tax cuts — that caused our current economic problems.
Shockingly, it's still going on.
So shame on Fannie, Freddie and the FHA, and shame on Congress. But shame on us, too, for not insisting they put a stop to it.