Investeens

Since the bailout of Fannie Mae and Freddie Mac in 2008, Democrats and Republicans have been at odds concerning government control of the housing market.  Congress, through three provisions stuck in the legislation that extended the payroll tax cut two months, has recently supported both of their views by simultaneously withdrawing and deepening government control in the housing market.

To reduce government control in this uncertain economic time, money has been diverted from Fannie and Freddie and has been used to pay for the “general government expenses”.  This move supports the Republican view, as the government is pulling away from the housing market to focus on other issues. The law allowed a tax break for the cost of private mortgage insurance to expire. Banks sometimes require a home buyer to purchase private mortgage insurance before it will lend money to the buyer.

Conversely, in order to retain influence in the housing market, the government has approved an increase in jumbo mortgages insured through Fannie Mae.  Jumbo mortgages are simply mortgages that have values that are higher than the standard set by Fannie and Freddie.  This action allows the government to expand its influence by making the buying of more expensive homes easier. More support of the housing market is an objective of Democrats.

It seems that lawmakers can’t make up their minds.  They are simultaneously fighting for and arguing against the increased role of government in housing activity.   For this reason, it could be some time before any real direction is taken.

To read more on these three moves, please click this link.