Federal Government Housing Policies - Term Paper Example

Download file to see previous pages The contemporary housing assistance plans involve the comparatively flexible grants for the state as well as the local governments. This is done so as to assist the homeless people, build up reasonably priced housing and offer support to the first-time buyers. This was also done to encourage community development as well as more planned, direct support programs that would assist in providing low-priced apartments and even rental vouchers to the deprived families, managed through quasi-public, local public and the private intermediaries (McCarty & Et. Al., “Overview of Federal Housing Assistance Programs and Policy”). The main objective of the paper is to analyze the housing policies adopted by the federal government related to the mortgage and funding system. With this concern, the discussion of the paper will intend to identify the strategies implemented by the federal government persuade lenders and low-income borrowers in dealing with highly risky loans and mortgages. Furthermore, the paper will analyze the role of Fannie Mae and Freddie Mac in the recent sub-prime crisis of 2008. Government Policy Intervention The condition of extreme and mispriced mortgage liability is the main reason behind the current boom in the housing markets. It is not possible to understand the unusual character of this particular cycle without recognizing the parts that links the policies on the demand-side as well as the supply restrictions. The boost in the housing prices was positively aggravated by the policies that facilitated cheap credit, especially for borrowers belonging to the low-income group. With the increasing prices, the enterprises those were government-sponsored, started becoming quite insistent in assisting lending activities. This significantly contributed to the rising prices of households (Glaeser & Gyourko, “Rethinking Federal Housing Policy”). During the early period of 1980s, the subprime lenders such as Household Finance Corp along with thrifts like Long Beach Savings and Loan provided funding services for home equity. They also provided services frequently for second advances to borrowers whose credit record was still to be recognized or even had financial records that were disturbed. At times it mirrored setbacks like divorce, unemployment, medical emergencies etc. Rates of interest charged on the subprime mortgages with considerable collateral which was the house were not as soaring compared to the car loans and also quite lesser than the credit cards. The benefits of the mortgage were coagulated and intensified in the year 1986 over the various other varieties of debt with the assistance of the Tax Reform Act. This act excluded taking away of the interest payments on the customer loans, whereas, the subtraction was retained in relation to the payments for mortgage interests (Stanford University “Subprime Lending”). Throughout the period of 1980s and the beginning of 1990s, prior to computerized “credit scoring”, a statistical method that was utilized to gauge the credit value of a borrower, initiated the evaluation of risk and mortgage lenders along with the subprime lenders depended on other attributes at the time of underwriting mortgages. During the period of 1990s the mortgage companies as well as the banks along with the securities organizations of the Wall Street ...Download file to see next pagesRead More