Having learned all the wrong lessons from the boom-and-bust cycle of the 2000s, most Democrats and many Republicans continue to think that federal manipulation of the markets for housing and mortgage lending is inevitable and beneficial. I’d understand — but not be inclined to give them a pass — if policymakers simply said that tackling tax deductions and government guarantees is too hard a task to attempt. Unfortunately, it goes beyond that. They genuinely believe the spin put out by the industries that benefit, or at least think they benefit, from the government manipulation.

The latest thing to worry about is the increasingly significant role of the Federal Housing Administration. From the LA Times:

This year alone the agency has backed nearly 2 million mortgages worth at least $328 billion. It insured 21.5% of all new mortgages last year, up from fewer than 6% in 2007.
Some lawmakers, however, worry that the FHA may be doing its job too well — enabling too many people with shaky finances to get loans, and in effect setting up a potential repeat of the housing bubble fueled in part by no-questions-asked subprime loans.
Recent numbers appear to underscore those concerns. The percentage of FHA loans that are delinquent or in foreclosure climbed to nearly 8% at the end of June, from about 5.5% in early 2006, according to the Mortgage Bankers Assn. And in the weeks ahead, its reserves for loan losses are projected to slip below federally mandated limits.
“It’s not the least bit implausible to be concerned about the ever-deteriorating performance of the FHA portfolio,” said UCLA finance professor Stuart Gabriel, director of the university’s Ziman Center for Real Estate. “The jury is out as to whether the FHA is going to need a government infusion.”

Well, actually, I think the jury is back. The sentence is another bailout. The only unanswered question is when. The Cato Institute’s Jeffrey Miron offers related thoughts here.