America’s wealthy get mortgage help from Uncle Sam – FHA lenders in Texas
In Santa Clara County, the center of the global technology industry and one of the richest places in the United States, most homebuyers receive government assistance, an analysis of loan data from the United States government. The same is true in other wealthy enclaves such as Nassau County, outside of New York, and Arlington County, outside of Washington, analyzing more than 50 million loan discoveries.
It’s no secret that the US government supported the housing market after the financial crisis. What Reuters’ analysis clearly shows is the extent to which government programs have helped some of the wealthiest communities in the country.
Julie Wyss earns US $ 330,000 a year selling real estate in Silicon Valley. When the time came to look for a new home for herself, Wyss moved into a four-bedroom, three-bathroom home in Los Gatos, California, an enclave of young technology entrepreneurs. It has approximately 2,400 square feet of floor space, four sets of French doors and a price tag of US $ 1.45 million. When she bought the house in June, her main funding was a US $ 625,500 Wells Fargo mortgage loans in Texas, backed by Fannie Mae, a Crown corporation.
The advantage for Wyss was an interest rate, 4.125%, lower than it could have been with a loan that was not guaranteed by the government. “It’s a good deal,” said Wyss.
Fannie Mae was created as part of the New Deal to help middle-class workers and workers buy their own homes. By buying mortgage loans in Texas made by lenders and repackaging them as securities for investors, Fannie Mae and her sister organization, Freddie Mac, are channeling money into the housing market for more loans.
Before the financial crisis, the limit on loans guaranteed by Fannie Mae and Freddie Mac was US $ 417,000. But in 2008, when widespread mortgage defaults pushed Wall Street to the brink of collapse, Congress changed the rules so businesses could pay off mortgage loans in Texas of up to $ 729,750 in high-priced areas like Santa Clara.
For the government to endorse mortgages for large, expensive homes, this may seem “unpleasant,” said Richard Green, a housing economist at the University of Southern California, but it was crucial at the time. “In 2008, the world was separating,” he said.
What followed was a chasm of support in almost every corner of the United States, in the form of loan guarantees from Fannie Mae, Freddie Mac and another big promoter of home loans, a government agency called the Federal Housing Authority. And when mortgage defaults threatened to drag Fannie and Freddie into insolvency, the government seized the two companies in 2008 and injected US $ 190 billion to support the housing market.
The result is that the government guaranteed 89% of US mortgages subscribed in the first half of 2012, up from 85% in 2011 and 30% in 2006, according to data compiled by Inside Mortgage Finance.
The big banks still offer mortgages without the support of the government, but the interest rates are higher, the standards are stricter and most people do not even consider them, said Dave Walsh, a real estate agent based in San Jose, California. “Now it’s a one-stop shop – and it’s Fannie and Freddie,” said Walsh.
Reuter’s analysis shows that between 2006, the year the housing market began to flow, and 2010, the last year for which detailed data are available, the mortgage guarantees of Fannie Mae and Freddie Mac have increased as much in wealthy communities only in the poor. Those data were collected by regulators under the Federal Mortgage Disclosure Act and include more than 50 million loans made during the period.
In 2006, the two entities guaranteed only about one-third of the new mortgages on the country’s high-income mortgage markets. By 2010, this share has risen to around three out of four, the data showed. In the lower-income markets of 20, equities also rose to about three out of four in 2010, from about one-third in 2006, according to the analysis. The figures came from large markets, those in which 2,000 or more new mortgages were subscribed during a year of the period.
The figures do not include loans from the Federal Housing Administration, so the total share of government-backed mortgages was even higher than the data suggests.
In Nassau County, a wealthy suburb of New York, Fannie and Freddie supported about seven new mortgages 10 in 2010. The upscale county of Arlington, Virginia, was receiving help in roughly the same proportion, as well as places where incomes were below the national average, such as Baltimore, Maryland.
In Santa Clara County, where companies like Apple Inc. and Google Inc. are headquartered and where the median family income is about two-thirds higher than the national average, government support has increased even more. Fannie and Freddie secured roughly three quarters of the mortgages in Santa Clara County in 2010, up from about 10 in 2006.