If at first you don’t succeed, you can try, and try, and try again- especially if you can just hand the check to the taxpayers.

Here’s how the Treasury Department described the latest housing program in their press release yesterday:

On February18, President Obama announced the Homeowner Affordability and Stability Plan, a comprehensive plan to stabilize the U.S. housing market by supporting low mortgage rates, providing alternatives to foreclosures, and expanding access to refinancing and loan modifications through the Making Home Affordable program. The plan is working. Millions of Americans have refinanced to lower rates, mortgage markets are helping families buy their own homes, and our modification initiative is giving households a second chance to stay in their homes.


We need to continue this progress and provide families with access to affordable rental housing and homeownership. To achieve that continued progress, and fulfilling a part of the Homeowner Affordability and Stability Plan first outlined in February, today the Administration, together with the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac (the GSEs), is announcing an initiative to provide support to state and local housing finance agencies (HFAs). Using authority provided to the Treasury Department under the Housing and Economic Recovery Act of 2008 (HERA), this initiative will help support low mortgage rates and expand resources for low and middle income borrowers to purchase or rent homes that are affordable over the long term.

They make it sound like housing has already been "saved", doesn’t it?  Here’s what the plan is supposed to do to continue all the amazing progress that has been made so far:

    • provide hundreds of thousands of affordable mortgages for working families;

    • enable the development and rehabilitation of tens of thousands of affordable rental properties;

    • provide refinancing opportunities for at-risk borrowers to convert to sustainable mortgages;

    • be paid for by HFAs – not taxpayers;

    • incentivize HFAs to transition back to market sources of capital as quickly as possible;

    • maintain viability of HFAs to preserve important role in providing housing resources.

Here’s my concerns about this latest program: [The main ones, anyway.]

"Affordable mortgages" and "refinancing opportunities"

I’m with Daniel Indiviglio of The Atlantic, who is skeptical of the Administration’s latest plan.  He says of the program:

The first and third points essentially means lower interest rates. This leads me to ask: do we really need to get mortgage rates lower? In case you don’t follow mortgage rates, they’re already pretty darn low.

Developing rental properties

What in heck do we need more rental properties for?"  There are more condo projects out there that have been turned into rental units [and apartments that became condos and are now apartments again] than you can shake a stick at.  Never mind all of the single family properties that speculators couldn’t unload, or the properties of the new foreclosure barons that have bought foreclosures by the dozens to turn into rental units.  Rental vacancy rates are already high.  Why drive the landlords that are already out there into foreclosure by dumping more supply on the market?

Paid for by HFAs

If there’s anything that we’ve learned in this housing downturn, it’s that anything the taxpayer guarantees- the taxpayer ends up paying for. As Indiviglio states:

Okay, so the idea is that the HFAs will pay fees which will act as cushion for potential losses to the financing that Fannie and Freddie are providing. How high are those fees? The rates they’re going to offer to borrowers are already lower than the market rate — the price which is supposed to cover the risk involved and cost of funding. Given how incredibly low those rates already are, how can the HFAs make money off these mortgages if they’re paying a fee to cover the remainder of the risk? After all, on the population we’re talking about, that risk is significant. Even beyond pure loss, there’s also servicing cost to worry about, which could be substantial on loans like these.

Incentivize HFAs to transition back to market sources

Once more, I agree with Indiviglio:

[W]hat private sources in their right minds would want to finance these loans? Their return is below market and their risk is high. I like the idea that there should be an incentive to move these to private capital, I’m just entirely unconvinced that there’s much private capital out there that wouldn’t charge a lot for financing. If there was, then why would they need Fannie and Freddie in the first place?

Maintain viability of HFAs

Wait a minute.  Isn’t "maintain viability" government-speak for "support financially"?  If the HFAs are to pay for these programs themselves, why would they need help maintaining their viability? The Treasury press release states:

The HFA Initiative is designed to maintain the viability of HFA lending programs and infrastructure on a temporary basis, helping bridge this difficult transition period as HFAs resume their normal activities.

Oh, just on a temporary basis? Right.

There’s no word from the Treasury yet on how "temporary" they feel this program would be, or what the projected cost will be.[ I snickered at this line from CNN's coverage: Officials declined to put a pricetag on the program, but said there would be no cost to taxpayers.] If the program is long-term, expensive and not very effective though, it will meet all of my expectations.  Michael Barr, the Treasury’s assistant secretary for financial institutions stated:

"There will be strong taxpayer protections," he said, adding that the "expected cost to the federal government is zero" because of these fees.

How anyone can make a statement like that with a straight face, I will never know.