Middle-Class and Poor People Shouldn’t Subsidize the Mortgages of Rich People

I don’t like coercive redistribution. But I really hate redistribution from ordinary people to rich and powerful vested interests, and I even developed an “ethical bleeding heart” rule to express my disdain for this approach.

Especially since programs that redistribute from the poor to the rich almost always involve corruption – often involving morally bankrupt Republicans.

For whatever reasons, the housing sector has a disproportionate amount of this type of redistribution. Here are some sordid details from a Reuters report about how housing subsidies are lining the pockets of the rich.

In Santa Clara County, the center of the global tech industry and one of the wealthiest places in the United States, most home buyers get help from the government, an analysis of government lending data shows. The same is true in other wealthy enclaves such as Nassau County, outside New York, and Arlington County, outside Washington, the analysis of more than 50 million loans finds. ..What the analysis by Reuters makes clear is the extent to which government programs have helped some of the nation’s most well-to-do communities.

The story provides an example, showing how the government is coercing the rest of us into subsidizing rich people.

Julie Wyss earns $330,000 a year selling real estate in Silicon Valley. When the time came to look for a new home for herself, Wyss settled on a four-bedroom, three-bathroom house in Los Gatos, California, an enclave of young technology entrepreneurs. It has about 2,400 square feet of floor space, four sets of French doors and a price tag of $1.45 million. When she bought the house in June, her main financing was a $625,500 mortgage from Wells Fargo guaranteed by government-backed Fannie Mae. The benefit to Wyss was an interest rate, of 4.125 percent, that was lower than she could have gotten on a loan that was not guaranteed by the government. “It’s a totally sweet deal,” Wyss said.

As happens so often, the government expanded bad policy when problems developed as a result of previous bad policy – sort of Mitchell’s Law on steroids in the case of housing.

Before the financial crisis, the limit on loans guaranteed by Fannie Mae and Freddie Mac was $417,000. But in 2008, …Congress changed the rules so that the companies could back mortgages of up to $729,750 in high-priced areas like Santa Clara. The result is that the government guaranteed 89 percent of U.S. mortgages taken out in the first half of 2012, up from 85 percent in 2011 and 30 percent in 2006, according to data compiled by Inside Mortgage Finance. Big banks still offer mortgages without government backing, but interest rates are higher, standards are more stringent and most people don’t even consider them, said Dave Walsh, a realtor based in San Jose, California. …In 2006, the two entities guaranteed only about one-third of new mortgages in the 20 highest-income mortgage markets in the country. By 2010, that share had risen to about three in four, the data showed.

In other words, we have lots of rich people now sucking on the government teat. This is bad housing policy, bad fiscal policy, and bad social policy (and, as this cartoon illustrates, you eventually hit a point when there’s nothing left to steal).

I have nothing against rich people. But I utterly despise people who get rich using the state. If they earn their money honestly, I’ll defend them to my last breath and I’ll fight against those who want to seize their earnings via class-warfare tax policy.

Sadly, we may be getting to the point where there are more of the wrong kind of rich people in America. That may represent a very dangerous turning point for society, sort of a bizarre version of the famous riding-in-the-wagon cartoons.