I disagree. The federal government invests enormous resources into subsidizing home ownership. Everything from Fannie Mae guaranteeing mortgages to not taxing home owners on the imputed value of rent.
And I think that's all well and good, home ownership has many positive externalities. But there's zero point subsidizing demand for something when supply in inelastic. In those cases subsidies don't result in expanded supply, only increased prices. For example even if diamonds are good, it wouldn't make sense for the government to match first time diamond buyers payment, because the supply of diamonds is inherently limited. All it would do is drive up prices.
Modest proposal: the federal government should revoke all of its housing subsidies in any municipality that restricts the supply of housing. San Francisco would be more than free to continue to block development. But if it chooses to do so, then San Francisco home owners should no longer be eligible for Fannie/Freddie mortgages, no longer be able to tax deduct mortgage interest, and should have to pay income tax on the imputed rental value of their home.
FM does not guarantee most mortgages, only certain govt types like FHA and VA loans, which the govt decided to back in order to help low income people get loans (otherwise the rates would be even higher for them).
FM buys up a lot of mortgages and sells them to investors, then turns around and puts the money back into productive use.
>taxing home owners on the imputed value of rent
What does this mean? You want to tax homeowners as if they paid themselves rent? (Which even then is net zero, so no tax...)
If you want people to pay income tax on the imputed rental value (which is likely not even legal - they are not getting an income from ownership - and courts have held income tax must be on sources of income), then you will increase the cost of home ownership, putting even further out of reach for most people.
>In those cases subsidies don't result in expanded supply, only increased prices.
Yet many places subsidies do result in new housing.....
Both Fannie and Freddie buy mortgages, but your description is much more stringent than in truth. Fannie buys from big banks, Freddie buys from thrift banks; both buy conforming loans(conforming to their standards) which is a large part of the home buying audience. In addition to that, the non-conforming loans that you listed e.g. FHA and VA. Those government-backed loans are for special populations. These mortgages are assembled into MBS and then sold to investors; the banks that originated the loans get their liquidity back.
Yes, I said as much. The OP claimed they guaranteed mortgages, which they do not.
I'm decently aware of the MBS market - I developed MBS pricing algorithms in the late 90s/early 00s for putting houses in tranches after a friend at a mortgage company asked for help with algorithms. Turns out the problem was NP-hard (a lattice based linear programming problem if I recall), but good heuristics from the literature and some special sauce outperformed their current (at that time) pricing.
Around the time the whole market blew up I was considering going to hedge funds, and was working out details of how all the math, science, and computer algos work to prepare for interviewing. After the market crash, I moved on more into scientific and R&D computing. But I still read papers in the area out of curiosity.
But the fact is the market is not "guaranteed" in any sense - which is likely good as 2008 showed.
> At Fannie Mae, we provide liquidity to the single-family market by purchasing and guaranteeing mortgage loans made by lenders and issuing debt securities and mortgage-backed securities that attract global investors to finance U.S. housing.
They do guarantee some loans, as I wrote above. The marketing blurb you copies cleverly does not state they will guarantee any mortgage loan.
If they did, the housing crisis would not have been such a crisis - the crisis happened when so many investors realized the loans they bought could crash and cause them massive losses - precisely because FM does NOT guarantee all loans.
They guarantee certain loans (conforming loans), and charge a fee to investors for this when they purchase MBS from Fannie Mae. Conforming loans make up under 40% of all mortgage loans. Of all conforming loans made, Freddie and Fannie end up purchasing about 60% of those.
It may be that they stopped buying loans they deem too risky, but that didn't use to be the case.
> FM does not guarantee most mortgages, only certain govt types like FHA and VA loans, which the govt decided to back in order to help low income people get loans (otherwise the rates would be even higher for them).
And this.
> The OP claimed they guaranteed mortgages, which they do not.
So it read to me like they don't guarantee mortgages save for the "special" mortgages for underserved groups (FHA/VA). In fact, they do. They guarantee all the loans they buy, as far as I know. They only buy conforming loans. Conforming loans are another way of saying, loans that they will buy (and guarantee). Of course they don't guarantee loans they don't buy.
I used to work at a mortgage originator, and we sold the majority of our loans to Fannie and Freddie.
> Of all conforming loans made, Freddie and Fannie end up purchasing about 60% of those.
This is true, because private investors pay more than Freddie and Fannie for conforming loans.
Sorry for any confusion - what I wrote was "FM does not guarantee most mortgages" in reply to the OP claiming FM guaranteeing mortgages is subsidizing the housing market.
(And I ignored that FM is not the Federal Govt for now...)
From the stats of conforming mortgages being 40% of mortgages and the FM only buying 60% of those, FM is at most guaranteeing (to investors, for a fee) around 24% of mortgages. That's well under 51%, right?
So FM not guaranteeing most mortgages is true, and it's not even close.
What? Of course Fannie and Freddie guarantee the MBS they issue. Which is an implicitly a guarantee from the US government. Otherwise they'd trade at much wider credit spreads, which would in turn lead to higher rates for home buyers. You don't have to take my word for it, here's the New York Fed's own words:
For agency MBS, the GSEs and Ginnie Mae promise full and timely payment of principal and interest, a guarantee that is either explicitly or implicitly backed by the federal government[1]
> You want to tax homeowners as if they paid themselves rent?
Alice, who has a 20% income tax rate, owns a house and rents it to Bob for $25k/year. Bob also has a 20% income tax rate, owns an identical house and rents it to Alice for $25k/year.
In total the government collects $10k/year in tax revenue from Alice and Bob from their rental income. Now let's say Alice and Bob swap houses and move back into their owner-occupied properties. This is an economically identical situation (remember the houses are identical). Both still own one home. Both are still consuming housing that's worth $25k/yr to them. Yet the government collects no tax revenue. Exempting the implicit value of rent is a subsidy favoring owner occupied housing.
> imputed rental value (which is likely not even legal)
The IRS already taxes tons of benefits based on the imputed income, even if no cash changes hand. For example, if your employer provides you life insurance, you have to pay income tax on the actuarial value of the policy even if you don't die during the coverage period.[2]
> then you will increase the cost of home ownership,
Not if the supply of housing is completely inelastic. Any increase in housing taxes will result in a commensurate fall in the sticker price that matches the tax increase. Economists have known this since Henry George.
>What? Of course Fannie and Freddie guarantee the MBS they issue
Yes, they guarantee the MBS they issue, which is on a minority of all loans. The fact remains they do NOT guarantee most mortgages. They guarantee conforming loans, which are around 40% of all mortgage loans. And of all conforming loans, they only end up buying ~60% of them. So they at most guarantee around 24% of all mortgages, which is certainly not most mortgages.
>Alice, who ....
Ignoring the other side where landlords write stuff off and renters get tax breaks. On the ownership side, you're also missing lots of tax changes.
So not identical.
Also, the govt has an interest in property ownership as they have solid evidence that people owning property in a region make them less more stable. So there's very good reason to provide tax incentives for policy reasons. It's been shown that tax incentives, dollar for dollar, are pretty good incentives compared to most other forms of government spending to affect policy.
>The IRS already taxes tons of benefits based on the imputed income, even if no cash changes hand.
And they have tons the other way too - all because they desire to affect outcomes. So that they can do it is not really strong evidence to if they should do it, unless you address all the reasons they desire to do it.
>Not if the supply of housing is completely inelastic.
Which it is not [1]. "most areas that are widely regarded as supply-inelastic are, in fact, severely land-constrained by their topography" which is not most of the country.
>Both still own one home. Both are still consuming housing that's worth $25k/yr to them. Yet the government collects no tax revenue. Exempting the implicit value of rent is a subsidy favoring owner occupied housing.
Why stop at rent? Alice cooks at home? Tax implicit cost of dining out.
This is interesting. I wonder if it would work to make all FHA loans be required to be NEW properties/units. So the only way to get access to the money is to expand the housing. I'm sure there are consequences but I need to think them through a bit more.
I don't know about policy consequences, but one political hurdle is that this would be attacked as "welfare for the rich" or something along those lines, since new construction is generally more expensive than existing units.
Yeah, I haven't thought everything through yet. However, the hope that this would force more of the new housing to be more affordable. A poor person isn't going to be buying a luxury condo so I was trying to think of a way to incentivize builders to increase stock and create more affordable housing. There are definitely some second order effects.
OP doesn't talk about subcidies, but instead about the fact that the federal level needs to force the city level to build for example smaller apartments/houses, or build denser or whatever. However, cities and the ones already living there don't like it because it will bring in poorer people, which drives down the tax income and increases the costs, makes the neighborhood less attractive etc.
I disagree. The federal government invests enormous resources into subsidizing home ownership. Everything from Fannie Mae guaranteeing mortgages to not taxing home owners on the imputed value of rent.
And I think that's all well and good, home ownership has many positive externalities. But there's zero point subsidizing demand for something when supply in inelastic. In those cases subsidies don't result in expanded supply, only increased prices. For example even if diamonds are good, it wouldn't make sense for the government to match first time diamond buyers payment, because the supply of diamonds is inherently limited. All it would do is drive up prices.
Modest proposal: the federal government should revoke all of its housing subsidies in any municipality that restricts the supply of housing. San Francisco would be more than free to continue to block development. But if it chooses to do so, then San Francisco home owners should no longer be eligible for Fannie/Freddie mortgages, no longer be able to tax deduct mortgage interest, and should have to pay income tax on the imputed rental value of their home.