Congress’s mortgage bailout bill perversely rewards the irresponsible federal agencies and politically-connected companies that caused the mortgage crisis, as the Wall Street Journal explains in an editorial today. Obsessed with promoting “affordable housing” and “diversity” among homeowners, the Federal Housing Administration helped spawn the mortgage crisis by subsidizing loans for high-risk subprime borrowers, helping them get large mortgages with little or no money down. It was subsidized gambling, at the taxpayers’ expense: the borrowers made lots of money if home prices continued to rise, but lost little money if home prices fell, since they had little down payment to lose. Now, the FHA has lost billions, at taxpayer expense, as those borrowers default on their mortgages.
Incredibly, Congress now plans to give the FHA expanded power to underwrite even bigger loans, so it can gamble even more heavily at taxpayers’ expense. It also plans to buy up failing mortgage loans made by a mortgage lender that made sweetheart loans to liberal Senators like Chris Dodd, the mortgage bailout bill’s Senate sponsor.
Even though the mortgage bailout bill would further destabilize the housing market by encouraging borrowers to default, and most of the public opposes mortgage bailouts, Congressional leaders favor them, since mortgage bailout bills contain pork for politically-connected left-wing special interest groups. The mortgage bailout bill also pointlessly undermines privacy rights, requiring that people in the mortgage industry be fingerprinted even if they have never been suspected of any crime or wrongdoing.