6 Million Americans have Underwater Mortgage
Guest Blog: Gloria Taylor
A recent CNBC report notes that nearly 6 million Americans owe more on their mortgages than their home is actually worth. This number comes from the negative equity rate now resting at 12 percent for all American homeowners. While the rate has dropped from its peak at 30 percent during the housing crisis, millions still suffer from the fallout of the federal government’s misguided housing policies leading up to the housing collapse in 2007-08. Total economic loss to the country is estimated to surpass $22 trillion – $13 trillion in lost economic output and $9.1 trillion in home equity.
Despite rising home prices, homeowners have been left with the consequences of reckless government intervention through government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. In an effort to meet federal housing goals to increase homeownership, risky lending standards became the norm. The federal government propped up Fannie and Freddie by exempting them from various regulations and taxes, provided a direct line of credit to the Treasury, and offered an implied guarantee of their mortgage backed securities with taxpayer dollars. The combination of artificially expanding homeownership and shielding GSEs from financial risk created a perfect storm of bad incentives leaving homeowners and taxpayers out to dry.
GSEs run under the assumption that government interference creates a safer marketplace and levels the playing field. In reality, the government’s subsidy of financial institutions like Fannie Mae and Freddie Mac is nothing more than crony capitalism at the people’s expense. The federal government’s continued support for GSEs demonstrates to homeowners, taxpayers, and real estate professionals that politicians are more concerned with achieving politically desirable outcomes than creating a stable environment for the housing market to flourish.
Despite guarantees and millions in subsidies, Freddie Mae and Freddie Mac has ultimately failed to markedly increase homeownership. From 1968 to 2013, the U.S. homeownership rate has increased by only 1 percent, moving from 63.9% to 65%. Instead of enabling more people to achieve the American dream, GSEs have turned the American dream of owning a home into owning a mortgage, at least for 6 million of us.
It’s time to put an end to GSEs, not merely continue the status quo of poor incentives that leave taxpayers on the hook and increase government spending and influence in the housing market. With millions still underwater, it’s time to learn from our mistakes and get the federal government out of the housing market altogether.