An Astonishing Proposition
When the Supreme Court ruled in 2020 that the President could fire any officer of the executive branch without cause, the Biden administration was ready. The day after the decision came down, the President announced that he would terminate the services of Mark Calabria, the director of the Federal Housing Finance Agency, which regulates and supervises Fannie Mae and Freddie Mac. These are the two government-sponsored agencies that buy and sell mortgages in order to, among other things, keep the national mortgage market liquid and orderly.
Calabria, a Trump appointee, had been working to spin off the two trillion-dollar companies, for the sensible reason that this would reduce their use by some future President to again stimulate excessive risk-taking in the housing market. Those policies, begun in the Clinton administration, resulted in the calamitous housing price bubble and crash that set off the 2008 financial crisis.
Noting the change of control, the Wall Street Journal’s opinion page headline at the time predicted the worst: “the gang is getting back together for another housing bust.” The new acting director, Sandra Thompson, followed suit with this statement: “there is a widespread lack of affordable housing and access to credit, especially in communities of color…. It is FHFA’s duty through our regulated entities to ensure that all Americans have equal access to safe, decent, and affordable housing.”
It took longer than expected, but the other shoe dropped last week when the FHFA announced that henceforth it would require mortgage borrowers who, because of their good credit could borrow at lower cost, to pay somewhat higher fees, while borrowers with lesser credit scores would be able to borrow at lower cost than their credit ratings would otherwise permit. Yes, it was proposing “from each according to his ability, to each according to his needs” for the mortgage market. Where have we heard that before?
The US kulaks (i.e., middle class) might revolt when they learn that their dream house was bought for a monthly personal payment less than their offer because the buyer, with a lower credit rating, received a subsidy from Fannie or Freddie to make up for it, and the subsidy would come from buyers with higher credit ratings. They might wonder why they, meeting all their financial obligations, should be penalized when it comes to buying a home, while those who may be spending with less care will be rewarded with a lower borrowing rate.
It’s fairly obvious that the Biden administration, as illustrated by this policy, believes that a better credit rating is something that not all Americans could achieve. It doesn’t come from spending your money judiciously, or paying your bills as they come due, but from other factors not financially relevant.
Indeed, as Director Thompson said when she assumed direction of the FHFA, her agency is responsible for ensuring that all Americans have “equal access” to safe, decent and affordable housing. Apparently, that meant that the government has an obligation to make housing affordable for some groups by making it more difficult for others to buy the same house. The vehicle for doing this would be to adjust the mortgage rates to make it easier for one and more difficult for the other.
This raises a serious question. Does the Biden administration believe that home buyers have the moral duty to sacrifice their own objectives in order to help others achieve their goals, and the government should enforce this moral duty? If so, this is an astonishing proposition for what began as a free market democracy.