“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker

Friday, November 11, 2011

Fighting Crony Capitalism In Residential Housing Brokerage

Wednesday's Wall Street Journal carried an editorial excoriating Ron Phipps, president of the National Association of Realtors, for his misleading and largely false letter to the editor in the same edition of the paper.

Here's Phipps' letter in its entirety:

The Wall Street Journal would have people believe that hard-working, middle-class families are not affected by lower conforming loan limits, when nothing could be further from the truth ("More McMansion Subsidies," Review & Outlook, Nov. 1). The representatives in Congress who support higher loan limits understand that this is not a partisan issue, as you are trying to make it out to be.

The majority of markets impacted by the loan-limit decline are not high-cost areas. For example, more than 100 counties throughout the Midwest and more than 200 counties in the South have seen loan limits decline by more than $64,000.

And despite how your editorial tries to position the issue, the loan limits are not the same as reforming Fannie Mae and Freddie Mac. Allowing the mortgage loan limits to expire in October was an arbitrary decision. Creating more market disruptions before reforming mortgage markets will only hurt our recovery.

The Senate measure to reinstate the limits is temporary—restoring the higher limits while the housing and mortgage markets stabilize. Recently, economist Mark Zandi said policy makers could shore up the housing market by "extending the current higher conforming loan limits that are set to decline in a few weeks." Borrowers, not taxpayers, will bear the entire cost of the higher loan-limits provision.

As people across the country are trying to gain a foothold in these trying times, we need to give them the resources to do so. The National Association of Realtors applauds the members of Congress who are standing up for America's families rather than turning their backs on them.

Ron Phipps
National Assn. of Realtors

Here's the related staff editorial referring to Phipps' letter:

To understand why 90% of U.S. mortgages are still underwritten by taxpayers, look no further than the nearby letter from Ron Phipps of the Realtors lobby. He makes clear that the Realtors, like the rest of the housing-subsidy crowd, are working hard to get Congress to reinstate a $729,750 loan-limit for Fannie Mae and Freddie Mac guarantees.

Notice how Mr. Phipps doesn't mention that dollar figure, perhaps because it makes a howler of his claim that the loan-limit reduction in October to $625,500 is somehow a blow to the "middle class." As House Financial Services Chairman Spencer Bachus and several colleagues note in a November 7 letter to GOP appropriations conferees, "the lower loan limits only affect a very small slice of wealthier homeowners in high cost areas." Only 1.3% of all loans done by Fannie, Freddie and the Federal Housing Administration would be affected by the change.

Another lobby classic is Mr. Phipps's claim that letting the loan-limit fall in October was "arbitrary" and that the Realtors only want a "temporary" extension. But any temporary program has to end sometime, and Congress first raised the loan limit on a temporary basis in 2008. It has since extended the higher loan-limit three times, and if it were extended again the Realtors would no doubt plead for another "temporary" extension the next time it expires, ad infinitum.

Reducing the loan limit is a modest attempt to restore some private competition to the mortgage market, at least at the high end. Mr. Phipps says this issue shouldn't be "partisan," by which he seems to mean that both parties should remain wholly owned Realtor subsidiaries. For Republicans who run the House, this is not a test of their partisanship. It is a test of their alleged free-market, tea-party principles.

The Realtor letter is at least educational, a reminder that one reason the U.S. economy is so burdened with government is that many alleged capitalists want government to guarantee their business. That's known as crony capitalism.

I wrote in this recent post concerning a Paul Ryan speech vilifying this sort of crony capitalism. It's helpful to see it up close in Phipps' letter. This is what my Congressman, Leonard Lance, is supporting, as I explained in this recent post.

John Boehner's House GOP will continue to be vulnerable so long as morons like Lance consent to be used by crony capitalists like Phipps to mindlessly feather the nests of the nation's realtors while those house brokers lie about the real situation.

Mark Zandi is a liberal, neo-Keynesian, hacked-up economist who believes in more government in business and more government spending for everything. He's a Democratic patsy.

Realtors don't want housing prices to fall to market-clearing levels because they'll share the pain of falling prices, not to mention that their business is fighting off competition from cheaper, online-based sales channels for housing.

It's also very clear now, in the wake of a decade of disastrous federal housing policies, primarily driven by wrongheaded Congressional mandating of stupid GSE mortgage-backed bond guarantees for low-income housing, that housing isn't and shouldn't be a major drive of the US economy.

Housing isn't a good bet as an investment for most Americans. It retards labor mobility and exposes owners to bad local and state fiscal policies which result in higher property taxes and lower housing values.

It's time we put an end to this particular variant of crony capitalism. John Boehner and Paul Ryan would be well-advised to muzzle the GOP House members who are supporting Phipps and his association in trying to prolong higher lending limits for GSEs and, instead, speed exit of the GSEs from the market, then kill them.

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