H.R. 5121 - Expanding American Homeownership Act of 2006

H.R. 5121: Expanding American Homeownership Act of 2006. This is one of the pieces of legislation that at the peak of the bubble made things only worse! It extended the term of permissible FHA mortgages from 35 to 40 years (Section 4) and repealed the minimum cash downpayment requirement of 3% (Section 5). I guess 3% is just too high of a down payment! This encouraged more poor people to buy overpriced homes that everyone should have known they cannot afford. This program also in general expanded the Federal Mortgage Insurance Program as well. What business the United States government has being in the mortgage insurance program? Well good luck finding that in the Constitution (the United States government is to regulate interstate commerce, not set up state sponsored entities engaging in interstate commerce!)

This bill was a clear attempt to continue the housing bubble. Housing prices were way over extended and instead of sitting back and letting the market correct, Congress and Cathy McMorris Rogers wanted to find a way for people who could not afford properties at these insanely high prices to be able to by them. My favorite quote from a release put out on that act was that “FHA's existing down payment requirement does not meet the demands of today's marketplace, where most first-time homebuyers put down two percent or less.” Insane! By the way, as a person who worked on Wall Street professionally, I can tell you that just about every hedge fund manager I knew saw this bubble for what it was. The collapse was not surprising, in light of policies such as the above.