Upscale Homes Lose Federal Mortgage Backing

By the end of the summer, the federal govt. will no longer be backing loans for "upscale" homes. From the NY Times:

For the last three years, federal agencies have backed new mortgages as large as $729,750 in desirable neighborhoods in high-cost states like California, New York, New Jersey, Connecticut and Massachusetts. Without the government covering the risk of default, many lenders would have refused to make the loans. With the economy in free fall, Congress broadened its traditionally generous support of housing to a substantial degree.

But now Democrats and Republicans agree that the taxpayer should no longer be responsible for homes valued well above the national average, and are about to turn a top slice of the housing market into a testing ground for whether the private mortgage market can once again go it alone. The result, analysts say, will be higher-cost loans and fewer potential buyers for more expensive homes.

Given how many taxpayers have lost their jobs and their homes, it's difficult to imagine why we'd be subsidizing home loans for the affluent.

Brokers and agents here in Monterey said terms were much tougher for nonguaranteed loans since lenders were so wary. Borrowers are required to come up with down payments of 30 percent or more while showing greater assets, higher credit ratings and lower debt-to-income ratios.

In the Federal Reserve’s quarterly survey of lenders, released last week, only two of the 53 banks said their credit standards for prime residential mortgages had eased. Another two said they had tightened. The other 49 said their standards were the same — tough.

The banks, whom we taxpayers bailed out, don't want to lend money to the aforementioned taxpayers to buy homes. There's a conundrum.

No sensible person would advocate a return to unregulated and indiscriminate lending. Still, when banks are making it hard for wealthy people to buy homes, something is definitely wrong with both the lending system and the alleged economic recovery.

cross-posted at MainSt/workingamerica.org