Downsizing Blog

Everybody likes a free lunch. Local government officials really like a free lunch, particularly when that lunch is paid for by federal taxpayers. Spend other people’s money on projects that you don’t have to tax your constituents to pay for? What a deal!

As Congress and the White House continue to debate the future of Fannie Mae and Freddie Mac, one of the oft heard concerns is that if we eliminate all the various mortgage subsidies in our system, then the cost of a mortgage will increase.  There certainly is a basic logic to that concern.  After all, why have subsidies if they don't lower the price of the subsidized good.  Of course some, if not all, of said subsidy could be eaten up by the providers/producers of that good.

That’s what the Department of Housing and Urban Development’s recently retired inspector general had to say in response to rampant malfeasance and mismanagement at public housing authorities uncovered by a joint investigation by ABC News and The Center for Public Integrity. 

A common rationale for federal policies to expand homeownership is the desire to reduce observed racial differences in homeownership.  Receiving the most attention has been the gap in homeownership rates between white households and African-American.  The current homeownership rate for whites is 76.5 percent (2007), while that for African-Americans is 54 percent, leaving a gap of 22.5 percent.

In a recent post on earmarks and federal grants, I cited the crazy example of HUD’s Community Development Block Grant program funding facade renovations for a wine bar in Connecticut. Now a Michigan newspaper reports that Bell’s Brewery in Kalamazoo is looking for $220,000 in CDBG money to expand its facilities.

Federal taxpayers helping foot the tab for renovations to a local wine bar? It sounds crazy, but that’s par for the course with HUD’s Community Development Block Grant program. 

Benjamin Franklin wrote that “in this world nothing can be said to be certain, except death and taxes.” Were he alive today, Franklin might add to the list corruption in federal housing programs. 

While the Department of Housing and Urban Development is the federal agency responsible for most housing subsidies, the departments of Veterans Affairs and Agriculture also subsidize homeownership. In fact, despite the problems caused by federal policies to put people in homes with little skin in the game, the VA and USDA continue to facilitate zero-downpayment mortgages.

The Department of Housing and Urban Development’s Inspector General released a stack of almost 20 audits late last week. Although the reports aren’t earth-shattering, the fact that almost every audit found problems was a striking reminder of the bureaucratic bungling that comes with government programs, particularly at HUD.  

Federal Housing Finance Agency director Edward DeMarco testified to the House Financial Services Committee this week on the state of Fannie Mae and Freddie Mac, which are currently under FHFA conservatorship.