Report suggests U.S. set to face another housing crisis

In 2008, the United States taxpayers were forced to bail out Fannie Mae and Freddie Mac, two government-sponsored housing corporations. It was believed these two government organizations were on sound footing since then. Well, not so much today.

According to new research from the Heritage Foundation, Fannie and Freddie are on the cusp of another financial crisis, while the U.S. economy could witness another housing collapse.

The report explains that Fannie and Freddie have been forced to reform their operations since the economic collapse, but have failed to adequately do so. “Neither Fannie nor Freddie has done much to mitigate the risk to the American taxpayer inherent in government backing for these institutions,” the report states.

The equity cushion is decreasing as portfolio obligations guaranteed by taxpayers have reached close to $5 trillion. In fact, Fannie and Freddie are embracing the same type of policies and programs were helped fuel the previous housing crisis. Moreover, the government housing corporations have implemented a new Housing Trust Fund that targets “underserved” geographic regions.

“The vital lesson that policy leaders need to learn is that these government-backed corporations are not making failures in the U.S. housing and housing finance system any less likely,” writes John Ligon, a senior policy analyst at the conservative think tank.

Indeed, these aren’t the only problems that are adding to the potential housing crisis.

Last year, the White House confirmed that it had ordered the Federal Housing Administration (FHA) to slash annual mortgage insurance premiums from 1.35 percent to 0.85 percent (SEE: Obama orders FHA to cut annual premium by 0.5%). Fannie and Freddie also announced that it was reducing the minimum down payment requirements (SEE: Will taxpayers bail out Fannie Mae and Freddie Mac again?).

In March, the Federal Housing Finance Agency Office of Inspector General said in a report that Fannie Mae and Freddie Mac could require further bailouts because risks are enhancing amid dwindling reserves.

These words should be posted once again:

“Many of these weak loans will, in turn, be securitized and traded on Wall Street. This is the hazardous cycle that led to the financial crisis,” warned Paul Sperry, a media fellow at the Hoover Institute. “The administration, with help from the media, has convinced the public that greedy Wall Street banks were to blame for the disaster, not Fannie and Freddie and their ‘mission’ regulators in Washington.”

Not only is the government putting forward policies that encourages homeownership even if the consumer can’t afford it, the Federal Reserve’s record-low interest rates is also getting people to buy homes out of their price range.