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February 2nd, 2011

What if HUD disappeared?

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iStock_000004969748XSmall[1]With all the recent debate surrounding the future of Fannie Mae and Freddie Mac, the question, “What if Fannie or Freddie disappeared from the market” has come up quite a bit. But HUD…I honestly haven’t really been thinking “What would happen if HUD disappeared?”

That is until today.

My friend Peter Miller addressed this topic in his own blog earlier this week:

Newly-minted Senator Rand Paul (R-KY) has a way to instantly save $53 billion from the federal budget. His plan? Eliminate HUD, cut its budget to zero.

According to Senator Paul, among other things, we need to end public housing and rental subsidies.

“Rather than providing a one-time stop for families on their way out of poverty,” says Paul, “public housing has largely been a failure. Public housing projects have become havens of crime and dysfunction, driving away the very business investment and homeowners that would revitalize a city block. The Low Income Housing Tax Credit, which subsidizes construction or rehabilitation of low-income housing, is a perfect example of market manipulation that does nothing to further the mission of public housing.”

At least on this blog, we haven’t contemplated a housing market without public housing. Unless Sen. Paul has a viable alternative to HUD’s departure, I tend to agree with Miller’s assesment of what would happen if public housing disappeared:

So what’s the alternative to public housing suggested by Sen. Paul?

There is none. If you slash the budget to zero there is no replacement program or policy.

Instead, what you will instantly have are large numbers of people who suddenly have no housing. They will be homeless. That is, they will be homeless if they peacefully move from such housing as they now have and then onto the streets. With their children.

If you think public housing is a bad idea, then no public housing is a worse idea.

In Sen. Paul’s own words:

“By removing programs that are beyond the constitutional role of the federal government, such as education and housing, we are cutting nearly 40% of our projected deficit and removing the big-government bureaucrats who stand in the way of efficiency in our federal government,” Paul said in a statement released Tuesday.

“I am proud to introduce my own solution to the mounting debt our spendthrift, oversized government has accrued,” Paul said.

Part of me instantly understood where Rep. Randy Neugebauer was coming from when he suggested we stop foreclosure prevention efforts like HAMP. The pure and simple argument there is their lack of success and the need for our markets to return to “normal.”

But personally I haven’t really racked my brain over the consequences we’d be dealing with if HUD was done for. READERS: What are your thoughts: how important is HUD, would you vote to eliminate it?

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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