Von Aldo

Government, via FHA, Still Doing Risky Loans

If you are in Congress and a Democrat, it sure is fun affecting populist Demagoguery to beat up on those money grubbing Wall Street and the "shadow" banking system. But check out the gub'ment's (pronounce with a Michigan Militia accent, please) own role in the home mortgage market.

According to an opinion piece in today's Investor's Business Daily (best op/ed page on the planet, thinks I), if the Federal Housing Administration were treated like a real, private-sector bank, why, it would be labled "'critically undercapitalized' and folded up," writes Rep. Tom Price (Rep.-GA), who serves on the House Financial Services Committee. While the FHA doesn't originate mortgages, it "guarantees 100 percent of loan principal for borrowers and lenders." Up to --- get this --- $729,750. (Talk about a jumbo mortgage.) Oh, and guess how much a borrower need put down for a lender to be so insured? Just 3.5 percent. In short, the gub'ment, via programs such as the FHA, is stoking the fires of leverage --- and then will be there to bailout those whom it enabled to blow themselves up with stupid loans. My how the gub'ment screws up whatever private-sector economic transactions it is designed to "help."

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