Pick an Agency, Any Agency: FHFA

As fiscal conservatives continue to seek avenues through which to derail the federal gravy train, it helps from time to time to take a look at the mind-numbingly long list of federal departments and agencies that are on board. Of course, this list is hardly exhaustive – just one that is publicly available – but it can certainly give us some concrete ideas on how and where to cut the spending.

Today: Federal Housing Finance Agency (FHFA)

About: “[The FHFA seeks to] provide effective supervision, regulation and housing mission oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to promote their safety and soundness, support housing finance and affordable housing, and support a stable and liquid mortgage market. The Federal Housing Finance Agency (FHFA) was created on July 30, 2008, when the President signed into law the Housing and Economic Recovery Act of 2008.”
FY 2010 Budget: $139.3 million (Source)

In response to the housing crisis in 2008, media pundits and politicians were quite convinced that there simply wasn’t any regulation in the housing market. Pay no attention to the fact that Fannie Mae and Freddie Mac – two monstrosities created and backed by the federal government to “encourage affordable housing” – were the main culprits in driving the demand for housing astronomically above the free-market levels. Pay no attention to the fact that we already set up a regulating body – the FHFB – in the wake of the S&L crisis of the late 1980’s. (Apparently, changing the “B” to an “A” will solve our problems.) The solution is to regulate the government with more government! Surely, there will be no conflict of interest here. The fact that the director can call the FHFA an “independent regulator” while keeping a straight face truly boggles the mind.

The $139.3 million budget for the FHFA seems small, but is fairly misleading. Part of their mission statement is to “support a stable and liquid mortgage market.” This means calling on Congress and the President to throw more money at Fannie and Freddie if, in the opinion of the FHFA director, they could become insolvent. Their cost to taxpayers goes far beyond their own budget, as they are tasked with regulating the agencies which back more than $5 trillion in mortgages – most of which should have never been made.

Of course, the mission statement of the FHFA itself is a collection of laughable contradictions. On the one hand, the agency wishes to “support housing finance and affordable housing.” They are not ashamed to admit that the goal is to continue the same easy credit policies of Fannie and Freddie that caused the housing boom and subsequent bust. However, with their attempts to prop up housing prices to prevent an increasing number of mortgage defaults, by bailing out homeowners and extending tax credits, they are doing just the opposite of making housing prices affordable. While the pain of foreclosures would hurt many Americans, it would also accelerate the recovery by allowing people who had accumulated savings to buy the cheaper housing, even without the phony credit of the GSEs.

The best way to ensure a stable housing market is to stop distorting it with trillions of dollars of money in mortgages, impossibly low interest rates set artificially by the Fed, and regulators on top of regulators who obviously don’t have a clue. Rather than setting arbitrary goals that make us feel warm and fuzzy about helping the underprivileged in the boom, maybe we should be observing the plight of those same people in the bust – people who are now not only underprivileged, but underwater on their mortgages or bankrupt to boot.

One could argue that, as long as Fannie and Freddie exist, it is “Necessary and Proper” to regulate them, and thus constitutional for the FHFA to exist. Of course, I’d counter that with “Are Fannie and Freddie constitutional themselves?” The “necessary and proper” clause applies only to functions pursuant to “the foregoing powers” in Article I, Section 8. One would be hard-pressed to find the clause authorizing the federal government’s backing of mortgages, financing of banks with money to make more mortgages, or packaging of mortgages for sale as financial assets. Get the federal government out of the mortgage and loan industry, and perhaps the banks who make these mortgages have a bit more incentive to be prudent and cautious with their lending standards.

Of course, we know that “those who cannot remember the past are condemned to repeat it.” I’d add that those who choose to blatantly ignore the past deserve what they have coming to them. After all, it isn’t as if we couldn’t see this coming the first time.

Constitutionality: None
Visibility: Moderate
Ease of Abolishing: Fairly difficult
Taxpayer Expense: Deceptively high
Priority: Fairly high

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