Peter Schiff rebuffs the government guaranteeing second mortgages, the latest massive inflationary public program, which he believes will have the opposite impact by making long-term home ownership unaffordable.
“Following the 2008 financial crisis, I testified against this in Congress,” said Peter Schiff.
Superficially, the government guaranteeing mortgages sounds like a great idea for encouraging home and private ownership and keeping capitalism alive.
With the government becoming a co-borrower, guaranteeing the home mortgage strengthens the borrower’s creditworthiness, who can obtain a loan near government rates. So, the residential mortgage effectively becomes a US treasury bond.
“Following the 2008 financial crisis, I testified against this in Congress”
PETER SCHIFF
It creates a moral hazard, so Peter Schiff rebuffs the government guaranteeing a second mortgage
“You would have thought after the crisis of 2008, the government would have understood the dangers of government guaranteeing mortgages,” he said.
“The lender has no skin in the game with the government guaranteeing the mortgages,” he added. In other words, lenders will lend to anyone with a heartbeat, and the borrower’s creditworthiness becomes irrelevant since the government is underwriting the loan.
Moreover, because mortgage rates are artificially low, the borrower will take on larger mortgages, not worrying about a default because the government is the guarantor.
“That is the moral hazard the government created when they guaranteed mortgages.
Fannie and Freddie were the agencies where the government put through this guarantee, and they all went bankrupt in 2008 because of the losses,” he said.
Peter Schiff notes government guaranteeing second mortgages will make homeownership more expensive.
Expanding credit will prop up residential home prices.
“You would have thought after the crisis of 2008, the government would have understood the dangers of government guaranteeing mortgages”
PETER SCHIFF
“Why is the government guaranteeing multi-family mortgages, which are investment properties?” asked Peter Schiff.
Homeowners will sign up larger mortgages to finance the higher price of their home purchase.
“They would have been better off without government guarantee, paying higher interest but borrowing less money,” he said.
Peter Schiff believes the government should get out of guaranteeing mortgages, but instead, they are doubling down by underwriting a second mortgage.
“Who are the losers? House buyers, late in the cycle, lumbered with a high mortgage and then defaulted” – Wealth Training Company
Who are the winners of the government guaranteeing mortgages?
Existing property owners will enjoy a new wave of credit expansion pumping up home prices.
Lenders are winners since they can’t lose and will lend to anyone with a heartbeat with government-guaranteeing mortgages.
Socialising the losses and privatize the profits?
New property owners who get in early on the credit expansion double-top property prices could also reap some home equity as prices boom.
Vultures buying distressed real estate will also benefit when the bubble eventually bursts. So, the borrower defaults, and the lender gets the property and liquidates it in a firesale private auction (probably to their buddies in BlackRock) who snap up homes on the dollar. The government (taxpayers) pay the remaining outstanding amount to the lender.
Is this crony capitalism at its best?
Who are the losers? House buyers, late in the cycle, lumbered with a high mortgage and then defaulted.
Those who don’t own a house and can’t tap into this credit are those worse impacted by inflation.
Highly inflationary, Peter Schiff rebuffs the government guaranteeing second mortgages
Default will be made good with more currency creation, not taxes, which is inflationary.
So, it is inflationary when credit expands to stimulate and when credit expansions to cover losses.
