Skip to comments.Mortgages’ Future Looks Too Much Like the Past
Posted on 03/24/2013 8:29:33 PM PDT by neverdem
IN a perfect world, policy makers, legislators and concerned Americans would have spent the last few years conducting an honest dialogue about two important issues: how to resolve Fannie Mae and Freddie Mac, the government-owned mortgage finance giants, and how to create a housing finance system that would serve borrowers without imperiling taxpayers.
But ours is an imperfect world, and discussions about these questions have taken place mostly behind closed doors in Washington. The rest of us Americans, who guarantee the mortgage market, have not been given much of a say.
This is a pity because the future of housing finance in this country seems to be coming down to two taxpayer-backed concepts. One is the status quo, with Fannie Mae and Freddie Mac continuing to back the vast majority of mortgages. The other is a newly conceived public guarantor with some of the same problems that got Fannie and Freddie into trouble.
Lets begin with the status quo. The taxpayer rescue of Fannie and Freddie in September 2008 has cost $137 billion so far. While this has been paid down from an initial...
Still, the Fannie and Freddie DNA in the commission raises questions about whether it seriously considered any outcome that excluded a government backstop. I asked Nicolas P. Retsinas, a member of the commission who is a senior lecturer at the Harvard Business School, about the risk to taxpayers. A fair concern, Mr. Retsinas said, adding: The commission believes in the continued importance of homeownership and there had to be some role for the government to preserve that option for middle-income families.
Wealthy families will also benefit from the guarantor. And the taxpayer, under both the commissions plan and the status quo will be left with a more significant role than many may have in mind.
(Excerpt) Read more at nytimes.com ...
I know...ironic now the NYT is running this. WTF did they expect?
We are now in a centrally-planned economy. Because the Fed keeps interest rates a near zero, the Gov't still wants every deadbeat out there to own a home, and the banks and Fed are still sitting on tons of bad loans and property already - the NY Times in telling us the free-market doesn't want to touch mortgages.
Had the Fed and Treasury simply backstopped the liquidation of these troubled banks interest rates would have shot up through the roof. RE prices would have dropped like a stone. It would have been scary, but explainable and the average mortgage payor wouldn’t be affected in the least bit. Some capital markets would have slowed or stopped temporarily.
This would signal to investors and capital would have been reallocated as good deals came along. In short time interest rates would have dropped and stabilized at a market based level reflecting the risk/reward trade off. Things would be back to normal.
The trouble is we haven’t had a free market economy in the US for over half a century. There aren’t any advocates in government in favor of it. GW Bush being the last, great hope of the free market.