What Happened To Counter-cyclical Policies When Confronted With Asset Bubbles?

By Anthony B. Sanders

House Prices Rising Rapidly and Gov’t LOWERS Down Payment Ratio??

One of the proposed solutions to prevent another financial crisis was to employ counter cyclical polices, particularly in the face of another house price bubble.

Remember, many economists denied there was a house price bubble even as late as 2007. “It’s the new normal!” they said. It wasn’t and house prices collapsed.

So as we sit here with house price growth at 3x wage growth, we are supposed to be adopting counter-cyclical measures like TIGHTENING lending standards.


But not surprisingly, Freddie Mac just announced a 3% down payment mortgage plan. The program is called “HomeOne” where the mortgage has no geographic or income restrictions.

According to Housing Wire,

It’s been more than three years since Freddie Mac rolled out a conventional mortgage that only required a 3% down payment for certain borrowers.

The program, which is designed for qualified low-and moderate-income borrowers, saw reasonable progress over the last few years, with Federal Housing Finance Agency Director Mel Watt telling Congress last year that Freddie’s 3% down program (along with a similar one from Fannie Mae) was continuing to grow.

But now, Freddie Mac is about to supercharge its 3% down program and launch a widespread expansion of the offering.

Freddie Mac announced Thursday that it is rolling out a new conventional 3% down payment option for qualified first-time homebuyers. What makes this program different is that there are no geographic or income restrictions.

According to Freddie Mac, this new offering is not replacing its Home Possible 3% down mortgages. Rather, the program is meant to complement the Home Possible program, which will still be available to low-and moderate-income borrowers.

This is counter-cyclical lending policy?? It looks like PRO-cyclical loosening to me.

I grant that it is difficult to have any semblance of “affordable” housing policy when The Federal Reserve slammed their target rate to near zero for 10 years while housing prices rapidly accelerated. Can we call The Fed’s affordable housing program “Home Impossible”?

Lest we forget, zoning laws make new supply more difficult thus increasing price even more and decreasing affordability.

As my former University of Chicago MBA student, Kevin Smith, documented, credit bubbles always collapse.


Let’s see if the decreased down payment begins to appear in the Fannie/Freddie data.


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