Blow the Houses Up

This is the first of two posts, one on housing, one on banking. I’ll post the second one shortly.

Just when you thought it was safe to get back into the financial waters our dumbass government decides to resurrect the housing bubble — or at least try to.

First, there is the effort to maintain the high limit on conforming loans — that is, the loans that Fannie/Freddie will backstop. The upper limit on these loans recently declined from $730k to $625k (preferably on its eventual road to $0). But the Senate has passed an extension of the high limit under the apparent impression that poor people need the lower interest rates that come with conforming loans to buy their million dollar homes. Fortunately, the House is less keen on this idea.

And yet, it only gets better! Here comes Johnny Isakson (R-Real Estate Industry) with the SAVE Act. What the hell is the SAVE Act? I’m glad you asked.

The SAVE Act would require lenders to take into account, when underwriting the loan, potential savings from various energy savings features of the house. If a new appliance reduced your electric bill, Congress would require that the lender allow that ”savings” to used to bid for a higher priced house. The impact of the bill would be to allow for even higher debt-to-income ratios on the part of borrowers, as if high mortgage to income payments has had nothing to do with the mortgage crisis we are in.

Perhaps worse the bill would also direct appraisers to include energy savings into the value of the house. Sadly this is anything but “sensible accounting”. As any decent appraiser knows, a house is worth what someone will pay for it, not what the value of various improvements are. That’s why most residential appraisals are based upon comparable sales, and not simple cost or revenue accounting (marginal theory of value, anyone?).

My desk has a dent from me banging my head on it every time I read these stories. Is this not what got us into this mess? Complicated loans that no one understood that were predicated on the idea that housing prices would go up? Now we’re getting complicated loans that no one understands predicated on the idea that “green technology” will make houses more valuable. My developer in Texas trumpeted green building methods. It was nice but it didn’t make us pay more for the house. My current house is about as green as a black steer’s tuckus on a moonless prairie night, but I still bought it because the neighborhood was perfect. If green housing is worth more to buyers, the market will tell us.

No one in Congress is qualified to run the housing market. They need to stop pretending they can before they fuck things up even further.

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