Secret #32 – “Affordable” Mortgages are Affordable for the Government

The U.S. home ownership strategy for many decades has focused on mortgages – to make mortgages easier to get – with the idea being that more mortgages would lead to more first-home buyers and to more home ownership. 

Politically, the strategy has been popular. Instead of focusing on making housing less expensive which might cost the government real money or might upset the real estate establishment, supporters fight for more “affordable” housing which is their code name for making mortgages easier to get even if the more “affordable” mortgages will have higher foreclosure rates in the long run. In addition, the cost of those programs is invisible. They increase home sales without really increasing direct government spending.

President Clinton, for example, bragged in 1994, “Our home ownership strategy will not cost the taxpayers one extra cent.” Those shortsighted programs increased home ownership in the short and medium run but in the long run, they increased foreclosures and home ownership did NOT increase in the long run.

They said having easier, more “affordable" mortgages would increase home ownership but we mainly just got higher house prices, much higher mortgage debt, and then much higher foreclosures and large price falls during real estate downturns.