The Fed needs your help. This stately body of academics has worked for years to rejuvenate the U.S. economy, but to no avail.
You can’t say they’ve been lazy in their efforts. When their first quantitative easing (QE) program failed to create a bounce back in housing, they started up another one, QE2. When that failed they brought in QELite, followed by Operation Twist.
After all of those failures, the Fed kicked the numbering system to the curb and introduced QE-Eternity, which allowed them to print money and buy bonds for as long as they wanted. Still, the housing market, that engine of middle class employment, has remained in a funk.
But have no fear! Across the land we can hear what Ronald Reagan considered the scariest words in the English language: “I’m from the government, and I’m here to help!â€
In late 2013, Congress directed the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, to increase the fees charged on mortgages. The idea was to better safeguard taxpayer dollars and to encourage private lending.
The agency’s new director, Melvin Watt, ignored this and left most rates the same. He actually lowered rates for the riskiest borrowers!
In the meantime, Fannie Mae and Freddie Mac have significantly lowered the size of the down payment required to qualify for a mortgage. It’s not the traditional 20%, or even 10%, but a mere 3%.
With real estate brokerage fees running at 6%, homebuyers are immediately underwater when they buy a home with 3% down. If they turned around and sold it for the same price, commissions would eat up twice their down payment! Brilliant! Isn’t this the sort of thing that got us into trouble last time?
But it doesn’t stop there. The Fed received another assist, this time from the private sector.
Credit rating firm Fair Isaac Company (FICO) recently announced the creation of an alternative credit scoring system. The point of the alternative approach is to give more consumers a high enough rating to qualify for credit.
