Tag Archives: Wall Street Journal

Argument: increase the value of federally-backed mortgages, finance more McMansions

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With a headline of “Rising Loan Limits Are a New Federal McMansion Subsidy,” the editorial board of the Wall Street Journal does not approve of recent mortgage changes:

Photo by Andrea Piacquadio on Pexels.com

The Federal Housing Finance Agency (FHFA) said Tuesday it will increase the maximum size of mortgages that Fannie and Freddie will cover—known as the conforming loan limit—to $1,089,300 in high-cost areas from $970,800 this year and $765,600 in 2020. The conforming loan limit in other areas will rise to $726,200, from $510,400 two years ago…

Instead, the Administration wants to prop up housing demand and prices by raising the guarantee limit. This will please the Realtors and affluent, especially in California areas where the median home price exceeds the new limit, such as Orange County ($1.2 million), San Francisco ($1.3 million) and San Jose ($1.7 million).

Sorry to state the obvious, but anyone who can qualify for a million-dollar mortgage doesn’t need the government to subsidize it with a guarantee. The average 30-year interest rate on a jumbo loan is 6.8%, which is similar to a government-backed mortgage.

Borrowers with jumbo loans tend to have higher incomes and credit scores. But these mortgages are getting riskier as borrower monthly payments have risen faster than incomes. Layoffs are increasing in higher-paying fields like tech, and a recession could result in foreclosures. The FHFA is expanding the taxpayer liability at an especially risky time…

The more the government intervenes in the housing market, the more damage it does.

There is a lot here that relates to work I have done. A few thoughts in response:

  1. The final line is interesting. Is the assumption that the federal government should not be very involved or involved at all in the housing market? One journalist reported this quote from a European finance official a few years ago: “Most countries have socialized health care and a free market for mortgages. You in the United States do exactly the opposite.” This government intervention was instrumental in helping to create suburbs and promote homeownership.
  2. This move might help people in more expensive housing markets. Does one have to be rich to access housing in Orange County or San Jose or is this needed because the housing prices are so high there?
  3. The headline mentions McMansions but the word is not used in the editorial. Is the term shorthand for expensive homes? Or, commentary on the kinds of homes people with this level of resources purchase? Is the Wall Street Journal against McMansions? (If I had to guess based on my work looking at the use of McMansion in the New York Times and the Dallas Morning News, the WSJ would fit somewhere in between these two sources.)

Considering the Wall Street Journal’s “mansion porn”

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The Wall Street Journal sends a special supplement each week to readers looking at the houses of the wealthy:

Mansion, The Wall Street Journal’s real-estate supplement, arrives each Friday slipped into the middle of my newsprint edition, the way pornography (so I’m told!) used to come in unmarked envelopes back before the internet placed it at everyone’s fingertips. I’m satisfied with my weekly print version, but you may prefer reading Mansion on the web, where the photographs are more numerous, detailed, lurid, and explicit…

The comparison to porn is apt. It’s also unoriginal and incomplete. A little more than a decade ago, when the century was young and right before their real-estate holdings drove millions of people into bankruptcy, New York magazine ran a regular feature about how fabulous it was to own real estate. And not just to own it, but to fantasize about it, drool over it, caress the photos and the sales price as though they were objects of sensual desire. The feature was called “Real Estate Porn,” in keeping with the salacious content.

Mansion invokes the same feelings of naughtiness: You’re watching people do something that, in a fairer and more just world, you’d be doing yourself. I think of Vivian Dixon and John Chapple, a married couple that Mansion introduced us to not long ago, as the exemplars of the Mansion character. They are voluptuaries of real estate. They grab houses the way the rest of us scoop mints from the little bowl as we leave a restaurant. At the time of the article’s publication, in May, they owned six residences, though by the time the piece ends you suspect their trigger finger is getting itchy again…

This willingness to take the wealthy on their own terms is a rarity in American business journalism. Reporters are usually more leery in their treatment of such subjects, when not nakedly hostile. Few people in the world despise the winners of the capitalist lotto more than the sorry drudges who are called to write about them. You’ll find a higher percentage of committed socialists in the newsroom of the Financial Times than at a lakefront party at Bernie Sanders’s dacha.

I have not seen this section but I wonder if tackles several darker essentials of American culture from the beginning:

  1. The presence of really wealthy people in the midst of an egalitarian/middle-class public discourse.
  2. The importance of real estate in American life. Sure, citizens can vote and a few people can move from the bottom to the top in unique ways but the real answer to getting ahead is real estate (from moving the frontier for 150+ years to gobbling up expensive properties in  global cities).
  3. The work that goes into homeownership in both maintaining and improving properties.
  4. The interest in seeing what the rich are up to and uncertainty about whether to critique their excess or celebrate their success.

It would be interesting to know how many Americans exist at this elite level of real estate. This is not the typical homeowner hoping to make money on their single-family home or the small market house flipper or the “dream hoarders” in the top quintile of earners; these are people buying and selling with large amounts of capital (perhaps some even thinking like the current president).