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Prop Up Those Prices

I said it in my book, and as Calculated Risk points out today it’s becoming more and more true with each passing week: If there’s one consistent federal policy for the housing market, it’s to prop up prices at any cost. The new homebuyer tax credit, generous FHA underwriting, the awfully high loan sizes accepted by Fannie and Freddie, the Fed’s mortgage securities purchase program, iffy loan modifications – these are all crutches that most likely forestall an inevitable reckoning. Letting the air out slowly is one thing, but this is more like holding one’s breath on the theory that the oxygen will last.

CR shares a rather alarming – one could charitably call it sloppy – quote from Barney Frank about the tons of shaky FHA loans made over the last couple of years and now threatening the insurance fund:

I don’t think it’s a bad thing that the bad loans occurred. It was an effort to keep prices from falling too fast. That’s a policy.

It’s policy like hair-of-the-dog is policy. Not good.

October 12th, 2009 | Tags: Barney Frank, Calculated Risk, FHA
Posted in A Lot More | No Comments »