In the early 1980s I was watching an episode of “To Tell the Truth,” the game show where a panel of celebrities was charged with identifying a mystery guest amongst three imposters.
The mystery guest for that particular program was Robert G. Allen, who had just authored a groundbreaking book titled “No Money Down,” which explained how to acquire parcels of real estate or homes with just that — no money down.
I thought that concept too good to be true, and two subsequent failed attempts to purchase property bore out my suspicions. Although to be fair, my business acumen at that time, and, arguably now as well, left much to be desired.
Since then, I’ve always viewed budget-friendly price tags affixed to housing and land sales with, shall we say, a more than healthy skepticism.
Last week, I felt more or less the same way when the Senate Banking Committee approved legislation that would ease the burden on strapped homeowners. And in perhaps as a tribute to the “No Money Down” theory, Senate lawmakers have said that we, the taxpayers, won’t have to worry about footing the bill.
When lawmakers assure us that one of their landmark proposals won’t cost us anything, I reach for the economy- sized bottle of antacid.
The bill, in essence, would allow the Federal Housing Administration to insure up to $300 billion in mortgages that lenders would agree to write down. Under the program, which is voluntary, lenders would agree to write down the value of existing mortgages following a determination that said borrowers would be able to pay off their new loans.
Banking Committee Chairman Sen. Chris Dodd, D-Conn., said the program would have, and I quote, “no estimated cost to taxpayers.”
Because the profits from mortgage securities concerns Fannie Mae and Freddie Mac would be used to fund any defaults.
But my question to Dodd & Co. is this.
What happens should the cascade in the value of home prices continues for the foreseeable future? Critics charge that the Senate plan as is employs rather conservative estimates with regard to default rates and price declines.
Want to take a guess who would make up the shortfall should these trends worsen?
Also, given their recent histories, Fannie Mae and Freddie Mac are hardly two stable organizations, suffering from past accounting scandals and massive amounts of red ink. Placing a higher level of responsibility on either could be like sending a 300-pound skater onto a half-inch of ice.
To be fair one of the laudable measure of the legislation is that it would create a more powerful overseer to Fannie Mae and Freddie Mac, consolidating oversight into a not-as-yet established single entity.
The bill is expected to make its way to the Senate floor sometime this month.
Whatever happens, you can safely wager that when it comes to taxpayers and government programs, there’s no such thing as no money down.
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