The Next Housing Bailout, Continued

U.S. housing policy is still insane:

In the go-go years of the U.S. housing boom, virtually anybody could get a few hundred thousand dollars to buy a home. ... Now ... only one lender of consequence remains: the federal government, which undertook one of its earliest and most dramatic rescues of the financial crisis by seizing control a year ago of the two largest mortgage finance companies in the world, Fannie Mae and Freddie Mac.

While this made it possible for many borrowers to keep getting loans and helped protect the housing market from further damage, the government's newly dominant role -- nearly 90 percent of all new home loans are funded or guaranteed by taxpayers -- has far-reaching consequences for prospective home buyers and taxpayers. ...

Taxpayers are on the hook for most of the loans that are still being made if they go bad. And they are also on the line for any losses in the massive portfolios of old loans at Fannie Mae and Freddie Mac, which own or back more than $5 trillion in mortgages.

There is growing evidence that many loans being guaranteed by the government have a significant risk of defaulting. Delinquencies are spiking. And the Federal Housing Administration, another source of government support for home loans, is quickly eating through its financial cushion as losses mount.

We are recovering from the financial crisis by sowing the seeds of the next one. The deficit situation is even worse than it appears. The U.S. must stop trying to promote homeownership and let the market determine who owns a home and who does not.