Republicans Subsidize Mansions
The GOP is missing its chance to stand for limited government.


Andrew C. McCarthy

Almost two weeks ago, when they figured no one was watching, the Republican-dominated House of Representatives, by an overwhelming 292–121 margin, voted to increase funding for the Federal Housing Administration. Just as government debt hit $15 trillion, edging closer to 100 percent of GDP, these self-proclaimed scourges of spending decided Uncle Sam should continue subsidizing mini-mansion mortgage loans — up to nearly three-quarters of a million dollars.  

Given the straits that the mortgage crisis has left us in, to say nothing of the government’s central role in getting us there, one might think Republicans would be asking whether the government should be in the housing business at all. “Stop out-of-control spending and reduce the size of government” — that is what Boehner, Cantor, & Co. promised in big bold letters during the 2010 campaign. That was in the snippets of text that occasionally interrupted the gauzy photo spread they called their “Pledge to America.”

Instead, here we are a year later, careering toward the cliff. We ought to be doing everything in our power to tee up the 2012 election as a high-noon showdown between Obama’s insatiable Leviathan and a GOP vision of fiscally sane, constitutional conservatism. So how do Republicans respond to their moment? How do they propose to “stop out-of-control spending and reduce the size of government”? Why, by putting taxpayers on the hook for shaky loans on luxury homes — sure to add prodigiously to the already $142 billion (and counting) housing bailout attributable to Fannie Mae and Freddie Mac.

Not housing for the poor, mind you, nor even for the middle-class — luxury homes. The real-estate market is so depressed at the moment that the median sale price of a single-family home is less than $170,000. Even in high-cost areas like Los Angeles, the Wall Street Journal reports, it has plunged to less than $325,000. Yet the Republican House — installed by the Tea Party in a sea-change election to be the antidote to Obamanomics — decided the taxpayers should guarantee FHA loans up to $729,750. Had they not acted, the public obligation would have been reduced to “only” $625,500 per FHA loan — couldn’t have that, right?

Most every sensible person realizes the housing market will never recover until it is allowed to bottom out — meaning no more price supports, period. Yet, thanks to Republican leadership, the FHA marches on, under the Fannie/Freddie radar. As the Journal’s editors elaborate, though the agency now guarantees a whopping $1.1 trillion, its capital reserve against this astronomical liability is $2.6 billion — too small to be considered even a pittance. Leave aside that this is illegal: It’s less than an eighth of the meager 2 percent reserve federal law requires. The reserve amounts to a leverage ratio of 422:1, a metric by which, the Journal editors quip, Lehman Brothers was comparatively “risk-averse.” With GOP at the helm, the ratio is up over a thousand percent since the salad days of 2009, when it was a more Lehman-like 33:1.

In their pre-election pledge, Republicans promised to “End Government Control of Fannie Mae and Freddie Mac.” They explained that the government-backed mortgage giants had “triggered the financial meltdown by giving too many high risk loans to people who couldn’t afford them.” GOP leaders thus committed to “ending [Fannie and Freddie’s] government takeover, shrinking their portfolios, and establishing minimum capital standards,” which they projected would save $30 billion.