Can Congress Really "Fix" Housing?
There has been lots of discussion recently about the proposed housing “fix” that may come as Fannie Mae and Freddie Mac are restructured. Some would like to see the two mortgage giants privatized without any government involvement, while others want to continue the GSEs as originally structured.
Regardless of the route chosen, the fix won’t be simple, nor will it come quickly. When housing collapsed, many looked to the mortgage market as the source for housing’s problems. And while a tightening of lending restrictions would have helped avoid some of the crisis; our problems are much more complex.
One of the key questions to be answered is how to insure the mortgage pool without risking additional taxpayer exposure, and several proposals work to address that issue. Should the market be totally privatized—an unlikely scenario—bankers would still want some sort of government guarantee to entice them to make all but the most secure loans. And if Fannie and Freddie continue as GSEs, lawmakers will try to insure that taxpayers don’t wind up paying for another bailout.
The other serious question is whether or not the private market will step in and continue to offer “affordable” mortgages. With banks continuing to struggle under the weight of millions of defaulting mortgages, it’s unlikely they will eagerly return to business as usual.
In the end, I suspect we’ll see an “experiment” with some form of the Fannie and Freddie involvement and with taxpayers still somewhat at risk. I doubt we’ll find any solution that will satisfy the needs of a housing market unable to find a secure footing, a mortgage market that has been on life support, and the millions of homebuyers who lack the ability to make large down-payments. Much as we might wish it so, there is no quick fix; and without one, both housing and the economy will find recovery continuing its elusive odyssey.
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