FHA Irony: A Lifeline to Luxury Condos
CrainsNewYork is reporting how our tax dollars are now supporting a new type of bailout—the luxury condo market in Manhattan. FHA has recently modified its rules to allow this new special financing where private lenders won’t dare to delve.
The irony exists in the very purpose of the FHA, which was created during the Depression to allow lower-income citizens achieve the dream of homeownership. The fact that commercial property managers are allowed to pursue this avenue is just another example of government run amok. Lowering the standards of lending creates more government dependency. As with all FHA loans, a mortgage default will be paid by the agency.
The facts speak for themselves: From 1998 to 2008, no building financing in Manhattan received—much less applied—for FHA financing. Today, real estate agents are pushing for this new option. Why the change?
Christopher Mayer over at Columbia’s Business School hits the nail on the head. He surmises, “It’s not an accident that the FHA is offering this — not private lenders. An unfilled condominium complex is not the kind of thing that a bank looking to rebuild its balance sheet on real estate is looking to do.” So, once again, it’s the government to the rescue.
Unfortunately, the lending rules aren’t the only alteration. It appears that the industry mentality has changed along with it. Crain’s reports that,
“The government is taking on more risk,” said Guy Cecala, publisher of Inside Mortgage Finance. “That’s the bottom line. They really can’t say no, because that’s their purpose. It’s to support the housing market when there’s no other funding.”
So the purpose of the government is now to prop-up, support, and bailout the sectors of the economy that are floundering—with our tax dollars.