By Catherine Austin Fitts
The current proposal to phase out Fannie Mae and Freddie Mac has the potential for ever greater back door shenanigans. Lot’s of money that can go out through the back door when the federal government turns huge amounts of federal credit over to private insurance companies. For example, when FHA engaged in coinsurance with private mortgage insurance providers in the 1980’s, the FHA General Fund lost 50% of the $9 billion underwritten in 3 1/2 years. They were paid a mortgage insurance premium of .50%
Given AIG’s traditional role in these and related areas, and Berkshire Hathaway’s relatively new activities in municipal bonds and local realtors, is this part of the work up to the ultimate in reengineering the federal budget and housing finance system by place? I want to see the players behind the scenes.
To continue reading Catherine’s commentary on current events subscribe to The Solari Report here. Subscribers can log in to finish reading here.
I asked attorney Carolyn Betts her impression of the new plan to phase out Fannie and Freddie.
Here is her response, full of wisdom:
I understand this proposal, more or less. I don’t think anything will work as long as people don’t have jobs to support their housing at reasonable prices. I.e., if people are going to be paid $8-12 an hour, then a house ought to be available at a debt service (including real estate taxes and insurance) equal to 31% of something like $1,300 – $2,000 per month. That assumes a worker works an average of 160 hours/month or about 2,000 hours/year – way over what a union member or middle class worker would work. That debt service works out to $413 – $620/month or, if you have two people working full time at $8-12/hour and 160 hours/month, $826 – $1,240/month.
If owned housing is too expensive for these workers, those with the money (hedge funds?) will own most of the houses and rent them at prices that don’t exceed 31% of income. But now mandatory health insurance costs should be considered in determining whether people can afford to spend even 31% of their income on housing. Food prices are going up (with food getting unhealthier unless the family spends way more than the average amount), health care AND health insurance is skyrocketing in price, gasoline prices are stubbornly high, winter heating costs have gone through the roof and people have to pay for health insurance (over $12,000 for a family and maybe $5,000 or more for a single person). THEN on top of that they must pay for health care ranging from few thousand dollars up to $10,000 if there are any major medical needs (assuming the health care is covered by insurance, which some of it is not).
The family of our two workers each earning $16,000 – $24,000/year have $2,667 – $4,000/month gross to live on (before taxes and mandatory health insurance) or about $1,841 – $2,760 after “reasonable” housing costs at 31% of gross income. On top of that, a responsible family will save for college and retirement. And divide this all in half for a single-earner family. Yes, there is earned income tax credit (financed by taxpayers) for people on the low end. Yes, there are supplements for health insurance under Obamacare, but under Obamacare, the supplements, if they amount to Medicaid under a Medicaid expansion program, can become tantamount to a loan against the estate of the recipients, so if the house has any equity in it, there may be a state lien for the state’s calculated cost for health care under Medicaid (which could be higher than the cost for private health insurance).
The financial planners of the world will tell us that this family should be saving for retirement and their children’s college. You do the math.
In short, the numbers just don’t work, and no government guarantee program is going to fix that. I love how this is being sponsored by guys from tiny states who have no background in housing.
~Carolyn Betts, Esq.
