Fed Drifting into Obama's Territory

by Gerri Willis

I spoke at the top of today's show about the need for leaders to stop using the terms "fixing" problems and "spending" money on them as interchangeable. But it happens all the time. As a matter of fact, the Wall Street Journal reports today that Federal Reserve officials are beginning to think about a new program to help the struggling housing market by cutting mortgage rates.

Now, the Fed doesn't directly control mortgage rates but it does influence them. In fact, Federal Reserve Chairman Ben Bernanke has been holding rates close to zero for three years - and mortgage rates have moved to 50-year lows - rising slightly only recently. None of that effort has paid off with a rising housing market yet - but the Fed may well double down on that policy.

To do that, the Fed would buy mortgage-backed securities -- the assets that nearly cratered the financial industry during the financial crisis. And that means it would print money or use its own reserves to buy them - both of which could cost us in the long run by raising inflation.

Look, I think there is widespread agreement that the factors standing in the way of a housing recovery aren't mortgage rates - after all, 30-year fixed rates stand at 4.18 percent - while a 15-year mortgage rate is just 3.47 - according to Bankrate.com. The real problem for a housing recovery is 9.1 percent unemployment.

Without jobs, consumers can't buy homes. No income, no loan.

And that's the other problem - qualifying for a loan these days is difficult - lenders want sparkling credit scores and solid employment histories. In other words, just as bank loan officers were loosey goosey during the housing boom they are incredibly strict in their terms now.

The Fed seems to be drifting into territory that the Obama Administration itself has failed at time and again. Whether you talk about HAMP or HARP or any one of a number of other programs - none of them have worked.

The main reason? Banks just haven't wanted to lend - regardless of the benefits or perks or muscle applied by the White House.

Ultimately, our housing market will have to shake off these doldrums on its own - work through the downdraft. More government spending and more federal promises aren't going to do it.

Proof Fed Incentives Don't Work

by Gerri Willis

I was sad to read today that the rate of homeownership is down again. It's now fallen by the largest amount since the great depression in the last 10 years alone.

According to the Census Bureau, that rate declined by 1.1% points to 65.1%. Ownership rates were down in every single region of the country.

To be sure, the rate decline might not sound like much, but I think it makes a big difference -- think about it -- do you want your next door neighbor to be a renter or an owner?

Research shows that owners care more for their properties and are more likely to get involved in their local community.

In big cities where rental populations are bigger -- like New York City where renters are 69% of the population -- you can see the difference in the care taken of properties and the public areas.

But you can get too much of a good thing.

Over the last decade or so, the federal government pushed more and more people into homeownership. And the experiment backfired.

Too many people bought homes they couldn't afford, because of federal guarantees and easy money. The bubble burst and the feds tried, but couldn't put humpty dumpty back together again.

And now taxpayers are picking up the tab.

First there is the $170 billion we've plowed into Fannie Mae and Freddie Mac, the two housing giants who were supposed to make housing a better place to invest.

Then there are the programs to help people in foreclosure. Those failed too and cost taxpayers more billions.

HARP, HAMP, the even the housing program for the jobless. They were all failures in varying degrees because they never put a floor under housing.

I believe we are going to have to allow this market to recover on its own. And the good news is that there are two powerful incentives at work that can help.

Mortgage rates, as we reported this week have fallen below 4% for this first time ever -- check it out -- this is amazing.

And prices are down 30% on average across the country -- more in some markets. Now that's a powerful incentive!

We don't need any other incentive from the feds. Because history is now showing us that it doesn't work. When it comes to governing less is truly more.

The government should be more like doctors, first do no harm.

Maybe the most convincing argument for ending the federal "support" for housing is this: We have the seventh highest rate of home ownership in the world behind Ireland, Italy, Australia, the UK, Canada and Finland. Which of those have mortgage deductions? None of them. Which of them have Fannie Mae's and Freddie Mac's? None as well.

Home ownership is a good thing. But not everyone has to own. I say the federal government should stand aside and let the market find its own level. Because the money we are spending to fix it just isn't working.

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