Study: Feds Guarantee Nearly 3 in 4 Mortgages in High-Income Mortgage Markets
A new Reuters analysis finds that between 2006 and 2010, the federal government -- through Fannie Mae and Freddie Mac -- guaranteed about three in four mortgages in some of the nation’s most exclusive zip codes such as Santa Clara County, California and Arlington, Virginia.
In 2006 Fannie and Freddie guaranteed about one-third of new mortgages in the 20 highest-income mortgage markets in the country, but by 2010, Fannie and Freddie had guaranteed about three in four mortgages in these exclusive mortgage markets.
Reuters profiled a woman who earns $330,000 a year and bought a house with “four sets of French doors and a price tag of $1.45 million” in Santa Clara, California.
She financed the home with a $625,000 mortgage from Wells Fargo that was guaranteed by Fannie Mae with a low 4.125% interest rate.
“It’s a totally sweet deal,” she exclaimed.
The news organization also profiled another home buyer in Santa Clara County who purchased an $820,000 three-bedroom home with a government-backed mortgage of $625,000.
Reuters analyzed data of more than 50 million loans made between 2006-2010, which was collected by regulators under the federal Home Mortgage Disclosure Act.
And according to Inside Mortgage Finance, “the government guaranteed 89 percent of U.S. mortgages taken out in the first half of 2012,” which was “up from 85 percent in 2011 and 30 percent in 2006.”
Reuters notes that before the financial criss, “the limit on loans guaranteed by Fannie Mae and Freddie Mac was $417,000,” but in 2008, "Congress changed the rules so that the companies could back mortgages of up to $729,750 in high-priced areas like Santa Clara.”
And they have. Consider these statistics in some of the nation's wealthiest counties.
Nassau County, a wealthy suburb of New York City: Fannie and Freddie supported about seven in ten new mortgages in 2010.
Arlington County in Virginia, one of the wealthiest suburbs in the nation: Fannie and Freddie supported about seven in 10 mortgages in 2010.
Santa Clara County, where, according to Reuters, the “median family income is about two-thirds higher than the national average”: Fannie and Freddie guaranteed roughly three-quarters of of the county’s mortgages, and this was up from one in 10 in 2006.
Plymouth County, Massachusetts, another wealthy suburb: Fannie and Freddie backed about two-thirds of new mortgages in 2010.
In the Irvine area of Orange County, California, another well-to-do enclave: Fannie and Freddie backed roughly eight in ten new mortgages in 2010.
Reuters mentions, "Fannie Mae was set up as part of the New Deal to help blue-collar and middle-class workers buy their own homes," but liberals and conservatives are in agreement that the federal government should get out of the businesses of subsidizing affluent home buyers.
Affordable housing activists like John Taylor of the National Community Reinvestment Coalition asserted Fannie and Freddie should only back mortgages for lower- and middle-income families, because “nobody I know buys a house for $600,000 or $700,000 who isn't affluent.”
And center-right and free-market organizations like the American Enterprise Institute have called on “the government to lower the loan limits for Fannie and Freddie by 20 percent a year until the two companies are effectively eliminated.”
The FHA has a loan limit of $729,750, which wille expire in 2013. After that, the FHA will have its loan limits capped at $625,000, just like Fannie and Freddie. Liberals and conservatives, though, feel the loan limits need to be lowered even more.