A Vote for Ending Mortgage Subsidies

Diana Olick has a good, quick summary of the manner in which reform (change?) is going to start sweeping over this country’s mortgage finance system. She points out that the FDIC will release and vote on new rules which will likely force banks to demand higher downpayments and tighten underwriting criteria while House Republicans are set to offer a number of bills that most likely result in the demise of Frannie.

Naturally, those who have long benefited from government subsidy are predicting the end of life as we know it, a.k.a. the demise of the 30-year fixed rate mortgage. They accurately note that the moves that seem to be afoot will result in a slower housing recovery with negative repercussions for many. The CEO of Toll Brothers (NYSE:TOL) puts it nicely:

There’s no question if the government gets out of the business of backing mortgages, rates should go up, underwriting will be tougher, down payments will go up. It’s going to affect all of us. It would be a head wind. (You can watch the full interview here).

Yep, all that and more, probably. Olick frets that now is possibly not the time to add to the real estate market's woes given falling prices, foreclosures and tepid sales. I think it’s the perfect time.

Right now real estate is an afterthought for the economy. It has gone from being a primary driver to a minor irritant. Realistically, it is unlikely that we will see any great boost from new construction for at least a couple of years, so why not take our medicine? The pain overall is going to be confined to the industry players and, really, it can’t make their lives that much harder. Besides, if we wait until we are well into a housing market recovery, you know they will scream that we can’t possibly cut off their government IV tube lest we plunge the country into recession.

Now seems like an opportune time to kick a very bad habit.