The U.S. Treasury Examining New Ways To Intervene In The Housing Market

Government intervention got us into this mess but apparently many think government intervention will get us out of it.

Most experts have yet to see evidence of strong economic growth ahead, which is the only solution to depressed housing prices.

The main problem is unemployment and underemployment do not allow many Americans to buy homes. There is a slew of unsold homes and foreclosed on homes that have yet to be brought to market.

This is depressing home prices.

So what is the latest plan? We're talking backstopping state-issued mortgage-revenue bonds, which are federally subsidized in that investors collect the interest tax free. During the boom, the states' housing finance agencies used these bonds to fund about 100,000 low-interest mortgages per year for lower-income home buyers. But since the bust, private bond buyers have shunned them, notwithstanding their tax-free status. At $4 billion this year, mortgage-revenue bond sales are running at a quarter of the pace they set in 2007, according to Thomson Reuters. The plan under discussion would have the government purchase about $20 billion worth of new bonds before the end of the year while insuring $15 billion in existing securities that states otherwise might be forced to redeem because they would not be tradable in the markets.

Administration officials are considering steps to limit the risk to taxpayers by, for example, charging a fee to back those bonds that Treasury does not buy outright. It is also true that, in the past, borrowers of bond-backed mortgages, well selected by the states, have defaulted relatively rarely. Of course, past borrowers didn't face anything like today's unemployment and foreclosure rates.