Ben Bernanke On GSE's: Was He Joking? I Would Hope So
I didn't see the testimony of Ben Bernanke on Capitol Hill because I was on an airplane coming back from Chicago. It's probably a good thing, because I wouldn't have believed what I heard. Only now that I see it in print, in an email from the office, can I read it over and over again and force myself to accept its veracity.
At the very end of the hearing, Sen. Schumer, the Chairman of the Joint Economic Committee, asked the Fed Chairman what his recommendation would be should the Congress increase the loan limit that the GSE's are allowed to purchase (the limit now stands at $437,000).
Bernanke replied simply, "A million." Ok, now in case you're not well-versed in what the GSE's are about, or at least what I thought they were about, well they were originally designed to offer low-middle income borrowers mortgages that were not exactly backed by the federal government, but the federal government would be the chief investor in the loans, so they would be sort of backed by the federal government.
"For more than 30 years, Fannie Mae's mission has been to provide products and services that increase the availability and the affordability of housing for low- moderate- and middle-income Americans," says the Fannie Mae web site. The GSEs were in fact created by the federal government way back when, but were then rechartered by Congress in 1968 as shareholder owned companies.
But back to my point: So when did a million-dollar home become low, moderate, or even God-forbid middle income?? According to the National Association of Realtors, the median price of a home is around $220,000, and I know I don't have to explain the meaning of median to an economist, but come on!
So apparently Mr. Bernanke thinks that instead of letting the housing market correct itself, that we should just take one of the most trusted types of lending institutions out there and let them play with the big boys and their big bad mortgage backed securities. Never mind that the market went completely haywire during the recent housing boom, and was fed by often negligent mortgage products, and that perhaps the focus should be on bringing affordability back at least into the nearest stratosphere.
I hope Mr. Bernanke was joking or perhaps surmising what it might take to get jumbo loans back in business, or perhaps there's another perhaps that I'm not thinking of.
Have we learned nothing these past few months?
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