BLOG VIEW: When it comes to Paul Ryan, the Republican candidate for vice president, there is good news and bad news regarding his view of housing. The good news is that he has been proactive in acknowledging that a crisis exists. The bad news, unfortunately, is that Ryan's ideas on fixing the problem suggest that he is woefully ignorant about the subject.
During the Republican convention last month, the Wisconsin congressman noted the Obama administration's connection to the housing crisis with a single and bizarre sentence: ‘It began with a housing crisis they alone didn't cause; it ends with a housing crisis they didn't correct.’
Uh, hello? ‘They alone didn't cause’? While a great deal of current problems can be deposited at the doormat of the Oval Office, putting the blame for the housing crisis – even a partial blame – on this administration is patently ridiculous. Have we already forgotten that the crisis metastasized during George W. Bush's reign of error, or that Bush – who repeatedly insisted that everything was copacetic as the housing market began to collapse – all but hid from view in 2008 while then-Treasury Secretary Henry Paulson took control of economic policy?
(And just for the point of clarification: I happen to be a Republican. I only mention this because I tend to get aggressive emails from some readers accusing me of being a socialist or worse whenever I criticize Republican politicians.)
Two weeks prior to the convention, Ryan acknowledged the housing crisis in a rally at a Las Vegas high school.
‘Since the president took office, 8.5 million foreclosure filings,’ said Ryan. ‘Home values down an average of $20,000. Eleven million homes underwater. Nevada ranks fifth in foreclosures. The unemployment rate? I had to read this number three times: 11.6 percent in Nevada. You deserve better than that. You deserve jobs in your economy; you deserve an America that's heading in the right direction."
Well, it is nice to know that Ryan is cognizant of the economic crisis, especially the problems facing homeowners. And is his answer to the crisis is�what? Well, your guess is as good as mine: in both his convention speech and his high school rally, Ryan conveniently failed to offer any specific strategies to bring the housing market back to good health.
But, then again, is housing really Ryan's strong point? In reading his much ballyhooed budget plan – you know, the one that approaches Medicare with the same subtlety of the Arabian knight in the Bugs Bunny cartoon who around runs swinging a scimitar while yelling ‘Hassan chop!’ – it appears that Ryan is out of his league on this topic.
Take the subject of reforming the government-sponsored enterprises (GSEs). ‘One option for scaling back the GSEs' overreach would be to cap the value of a home for which Fannie and Freddie could guarantee a loan,’ Ryan wrote in his budget plan. ‘Such a policy would reduce the number of loans the entities could back, naturally shrinking their market share.’
Oh, yes, of course – a loan value cap! Why didn't anyone think of that before? After all, everybody knows that the GSEs happily guarantee loans that run into the seven- and eight-digit range, right? All we need is a loan value cap – say, perhaps, $417,000 – and we're on the road to Easy Street again, yes?
Ryan also used his budget plan to stop the ‘transfer of taxpayer risk’ to the Federal Housing Administration (FHA). In his budget, Ryan noted that the FHA's Mutual Mortgage Insurance Fund's capital reserve ratio was ‘far below its congressionally-mandated level of two percent,’ and that ‘yet another taxpayer bailout of a housing finance giant will be automatically triggered’ if the capital ratio goes below zero.
But what Ryan forgets is that the FHA is a government agency, whereas Fannie Mae and Freddie Mac were publicly traded, government-sponsored enterprises. There is no ‘transfer of taxpayer risk’ because taxpayers have been financing the FHA (and all of its risks) since the agency was created in 1934.
Dr. Robert Van Order, professor of finance and real estate at George Washington University in Washington, D.C., and a nationally recognized expert on the FHA, told MortgageOrb in an interview published last fall that an FHA bailout is just not going to happen.
‘The FHA is owned by the government and taxpayers, from first dollar to last,’ says Van Order. ‘The FHA can get money relatively easy from the government – there is no threat of its going out of business. It is too important to the market.’
Ryan is being promoted in the media as something of a GOP attack dog. Unfortunately, he is tripping over his own paws while trying to take a sound-bite out of his opposition. Really, if these comments are any indication of his knowledge, then I wouldn't be surprised if Ryan thinks a jumbo mortgage is a home loan for elephants!
– Phil Hall, editor, MortgageOrb
(Please address all comments regarding this opinion column to hallp@mortgageorb.com.)
