A jumbo loan metaphor

What do the politics of Oregon and Kentucky have to do with how big a home loan Freddie Mac is allowed to purchase?


Andrew Leonard
May 24, 2008 2:09AM (UTC)

Brad Sherman, a Democratic Congressman representing the San Fernando Valley in California, made a revealing comment during a House Financial Services committee hearing on Thursday.

The purpose of the hearing was to discuss whether or not to permanently raise the "conforming loan limits" that apply to the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Under the terms of the economic stimulus bill, the conforming loan limits were temporarily raised in geographically specific high-priced housing regions through Dec. 31 of this year, so as to allow the GSEs to purchase so-called "jumbo" loans and inject a bit of liquidity into some of the nation's worst performing housing markets.

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Sherman was giving his explanation for why the cap on jumbo loans was being lifted in some regions and not others.

This country is very similar in so many ways from one place to another. The same stores at the same prices, maybe you pay 5 percent more for a cheese dog here or a McDonald's hamburger there. Even our weather -- maybe it's 10 percent hotter, 20 percent hotter in one place than another.

But housing prices are the one thing that is dramatically different. In Pittsburgh, the median home price was $120,000 last year, and in Omaha $138,000 -- in Los Angeles, $589,000. That is a ratio of difference that makes the political differences between Oregon and Kentucky look like nothing.

We cannot have one-size-fits-all

Kudos to Rep. Sherman for some au-courant political allusion-making. Except: Isn't it exactly that "ratio of difference" that at least partially explains the political differences between Oregon and Kentucky? Obama dominated the coastal regions of Oregon, where presumably real estate prices are considerably higher than in Kentucky's Appalachian counties. Much has been made by the pundits of how the Democratic primary race has fractured -- at least as far as the white vote is concerned -- along the faultline of class. Isn't the proposal to raise conforming loan limits in some of the priciest real estate markets of the U.S. just another reflection of the same reality?


Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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