Taxpayers Guarantee Loans For Million-Dollar Homes

December 3, 2009

There are 1,192 federal domestic programs. Hundreds of these programs were born out of a need to assist the less fortunate of the country, and initiated by lawmakers for a variety of reasons, the least not being a desire to make constituents happy enough to re-elect the lawmaker. But dozens of these programs have been modified over the years to assist “well-to-doers”. One of those is the Federal Housing Assistance (FHA) program.

The FHA falls under the Department of Housing and Urban Development, and was put into place in 1934 as a result of the Great Depression to help the needy and down-trodden. Wiki defines its goals as “to improve housing standards and conditions; to provide an adequate home financing system through insurance of mortgage loans; and to stabilize the mortgage market”. But today the program is used to help people purchase homes up to three-quarters of a million dollars. And if you want to buy a multi-unit housing building, you can finance one that cost up to a $1 million with a guarantee through the FHA.

The Washington Post describes it as “Washington’s latest benefit for the not-so-poor”. The New York Times tells us that the FHA is helping “investors and well-off people”, and they cite a 27 year-old man so down on his luck he had to borrow money to move to California where he and couple of buddies bought an apartment building for nearly $1 million with FHA assistance. Condo’s that cost more than $500,000 are being financed with FHA backing.

The FHA is about broke due to so many loan defaults, yet they can see their way clear to loan people enough money to buy million-dollar investment properties. And guess where the money will come from when the loans go sour? Yep, you’re right! Me, you and the rest of the tax payers.

Now! According to an article yesterday by The Washington Post, the FHA plans to “toughen [the] rules for borrowers”, meaning that buyers will have to ante-up larger down payments. Other requirements and restrictions will also be put in place. But there’s a fundamental problem with all of this — why should the FHA be guaranteeing loans for any of these people. The FHA is a federally financed (by taxpayers) entity designed to help the less fortunate; not the well-to-doers. Yet, I suppose the precedent has been set — trillions of taxpayer dollars to the wealthy on Wall Street and across the rest of America, so what’s a few hundred thousand for the un-needy (and maybe the un-deserving).