Federal Debt Reduction

free essayProvision of adequate and safe housing is one of the fundamental responsibilities of the government. Every person needs safe housing regardless of their social status or standing in the society. Buying or building a home is an expensive venture, and it requires enormous monetary and time resources to get the right type of house. As a result, most people admit that it is practically impossible to acquire homes without mortgages. Mortgages are home loans extended to needy citizens to assist them in acquiring affordable housing. In the United States, the Federal agencies provide mortgage-related incentives and tax breaks purposely in order to ensure people of all classes buy decent homes. Recently, concerns are high among members of the Congress that government-sponsored enterprises such as Fannie Mae and Freddie Mac use taxpayer’s money for the wrong reason: supporting middle and low-income earners. According to them, this should be left to the Wall Street mortgage market funding. The proposal to eliminate federal mortgage-related tax breaks and incentives to the middle- and lower- income families and retain those who benefit the wealthier is unethical.

Relevant Facts

Freddie Mac and Fannie Mae are the government-sponsored enterprises (GSEs). Consequently, this means that they are privately owned but receive some form of support from the federal government. In fact, they are required to assume some public functions without favor or inclination toward specific individuals (Davidson, 2016). The two institutions provide a secondary market for home mortgages and purchase of mortgages from owners. Because of the government backing, the corporations can provide housing loans at lower interest rates, allowing middle- and lower-income individuals realize their dreams of owning a home (Davidson, 2016). Over the previous years, the firms have grown politically powerful such that key government officials control most of their operations. This has contributed to the debate in public over their special government treatment at the expense of other privately-owned corporations. This political interference with the organizations has led to the proposal to eliminate tax breaks and incentives to low and middle-income brackets while allowing wealthier citizens consume the products as a means of reducing public debt (Tunc & Yavas, 2017). This advance brings into light fundamental ethical issues such as integrity, trust, diversity, compliance, and governance.

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Ethical Issues

Government sponsored organizations are required by law to conduct business with commitment and honesty by treating every citizen or consumer fairly. The unwavering commitment gives rise to trust. The proposal by the government to cut federal support, therefore, compromises on integrity and trust ethical issues (Goodman, 2016). Likewise, the government is required to appreciate diversity. People are not equal in any aspect. Recognizing and supporting diversity is the key to ensuring harmony in a country. Consequently, the proposal to selectively cut off the majority of citizens from benefiting from mortgage fails to honor diversity in the country. Moreover, the approach goes against good governance and compliance with the existing guidelines. Business is supposed to comply with government regulations and is required to adhere to business conduct policies. The policies discourage discrimination based on the purchasing power. Thus, wealthy, middle, and lower class should have an equal opportunity of accessing housing loans based on their purchasing power or level of income.

Primary Stakeholders

The primary stakeholders, in this case, are the Freddie Mac and Fannie Mae and the citizens of the United States. Freddie Mac and Fannie Mae are stakeholders, because they are entities that were granted resources and authority to advance loans to needy citizens. Therefore, any person who is signed up with the organization should derive unsanctioned services. The people of the United States are also essential stakeholders, in this case, because they are the ones who contribute taxes and fees that go to financing the entities. From the taxpayer’s money, the companies operate smoothly without fear or lack of resources to buy homes for the needy persons. As a result, Freddie Mac and Fannie Mae have the right to approve or reject mortgage loans based on the past and current financial situation of a particular consumer. They also have the right to conduct business in a way favorable to every customer. On the contrary, loan seekers have the right to access loans of any amount considering their financial strength. In addition, they have the right to get truthful information concerning the investment products and enough time to repay their home loans. This is to prevent unnecessary credit default situations.

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Possible Alternatives

Freddie Mac and Fannie Mae have the responsibilities of advancing housing loans to each and every citizen of the United States regardless of their economic status. That is to say, people from the three economic classes should have access to the home financing provided they have the capacity and ability to repay the principal loan amount plus the interest (Saez & Zucman, 2016). In addition, companies have an obligation to guide consumers on investment schemes that are appropriate. This is to prevent repayment stress and ensure people retain their homes without setbacks. Finally, the firms have the responsibility of eliminating discriminatory practices aimed at blocking particular groups of people from loans. The goal is to uphold integrity and trust among citizens.

First, the citizens and mortgage seekers have the obligation of paying taxes, fees, and tolls as some of these revenues end up with mortgage lenders. Second, loans seekers have the responsibility of requesting home loans if current situations are satisfactory to repay the premiums and lead regular life until the mortgage is over. Last but not least, they are supposed to highlight any discriminatory practices when accessing home loans. This is to ensure the companies do not deviate from the core goal of conducting business fairly. They should lodge complaints with relevant bodies when they believe their rights have been compromised despite paying taxes and fees to the government.

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Ethics of the Alternatives

The proposal to maintain incentives to wealthier taxpayers and eliminate the same to the middle and low-income earners gives rich people an undue advantage. The majority of the U.S. citizens fall in the low and medium income bracket. They happen to be the majority of the taxpayers. In fact, the wealthy people account for less than 5% of the total population (Jacobs & Dirlam, 2016). These are politicians, musicians, celebrities, corporate CEOs, and entrepreneurs. Consequently, allowing wealthy people to have access to loans at the expense of the majority of taxpayers will see low and medium class bear the heaviest burden. This is because Freddie Mac and Fannie Mae derive financing from the federal government which draws the revenues from the taxpayers. Consequently, there is a need for restructuring to ensure the burden is distributed equally among stakeholders.

Practical Constraints

One fair and equitable way is to allow loans based on the level of income. In this setting, mortgage seekers will get loans as a proportion of their earnings and their ability to repay. This way borrowers will not fall late in repayment of the principal and interest rates (Jordà, Schularick, & Taylor, 2016). This will not disrupt their living conditions and will have access to healthcare, education, and food without straining. While considerations on the level of income may not work for all individuals, there would be the need for possible alternatives. Such options include forced savings and creation of home-rental programs. The reason the government agencies are recommending elimination of tax incentives is to deter risky borrowing, characterized by poor repayment (Elul, 2016). In the case of forced saving, home buyers would be educated on purchasing slightly small houses with low payments. This would allow them to build quick equity. As a result, they will be able to access home loans of greater amounts, and the risk of borrowing will go down. On the other hand, the creation of home-rental programs would be vital in ensuring equity and fairness in home ownership (Gilbert, 2016). Renters contribute taxes that fund the GSEs. This program will give them the opportunity to build their saving and necessary credit histories while purchasing a home after a stable and lengthy period of renting.

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Taking into consideration two approaches, forced saving would be the fairest to all the stakeholders. First, the plan would allow the mortgage borrowers the opportunity to build equity in the shortest period. The repayment would be minimal thereby fast-tracking the repayment and reducing the repayment period. In the process, Freddie Mac and Fannie Mae would not suffer delayed payments which could present logistic and operational challenges to the company (Jordà et al., 2016). In addition, the approach would ensure the companies have adequate information, including the credit and borrowing history of a consumer before expensing loans, an act that would lower the number of risky loans. Undeniably, the two alternatives have ethical costs and benefits. For instance, forced saving will enhance integrity and diversity, while compromising business conduct policies of ethical decision making. Consumers will have to make pre-determined decisions. Home rental programs will be costly due to the time factor and beneficial in the sense that every citizen will have the opportunity to decent home.

Of the two, forced saving will provide the greatest benefits and fewest costs than home-rental programs. The main practical constraint with forced savings programs is that not all houses are cheap and due to numerous economic issues quick repayment may not be possible. For example, Freddie Mac and Fannie Mae may lack low-cost houses while borrowers may run into cash challenges thereby lagging behind in repayment. On the other hand, several constraints may affect the home rental programs. Freddie Mac and Fannie Mae may be reluctant to issue loans to people with poor credit history despite living in the apartments for long periods. The consumers may also fall short of creating a favorable credit history given the high cost of monthly rents and numerous expenses such as food and education. This may limit the magnitude and number of loans expensed to the borrower. In order to correct these obvious constraints, there is a need for involvement of legislative bodies to regulate and improve resource allocations to areas with small populations. This approach will help reduce overconcentration of housing in one location which leads to increased prices as demand is high than supply. Therefore, improving infrastructure in remote areas will contribute to creating more supply of housing units resulting in a price drop. Consequently, low- and medium-income earners will have access to affordable housing.

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Conclusion

The proposal to eliminate tax and incentives for middle- and low-income earners present serious ethical issues. Freddie Mac and Fannie Mae are private entities that are mandated to provide mortgages to all citizens regardless of their social and economic standing. However, the proposal to eliminate the loans compromises their ethical principles of fairness and integrity and goes against good governance and commitment to public good. Consequently, adopting programs such as forced saving and home rental programs is significant in ensuring fairness and equity in the sector. While forced saving is the prudent way of ensuring equity, because it has the greatest benefits and fewest costs, improving infrastructure in remote areas to allow construction of more housing units is the key to unlocking the current housing crisis.