While it is foolish to blame Fannie Mae and Freddie Mac, the giant government-backed and now government-owned housing finance institutions, for the housing bubble or the crash of 2008, it is clear that our current system of stabilizing and subsidizing the housing markets needs to change. It's also become clear that this is an issue that no one in the political establishment wants to touch -- the House Financial Services Committee has repeatedly rescheduled hearings on the topic, and the administration has yet to release a promised report on what to do about the troubled institutions.
Alyssa Katz, a regular Prospect contributor who knows more about housing issues than just about any journalist working today, had a good op-ed on these issues in POLITICO. She argues that a strong government role is still needed to provide support for the safe, 30-year mortgages that allow people access to sustainable home-buying credit:
One promising proposal now being talked about comes via the liberal policy institute, the Center for American Progress: Create chartered, limited-profit companies with an explicit government guarantee and the mission of promoting widespread ownership. This, with private bankers, would operate under a new tough regulator — not the Securities and Exchange Commission, which was nominally in charge.
Here is the CAP plan she refers to. Another, more radical plan that I recently alluded to comes from Raj Date. He wants to go much further in privatizing the agencies than either CAP or Katz, eliminating government-backed institutions entirely and subsidizing the market through more transparent mechanisms. But politicians hate revealing and endorsing the hidden subsidies, so I think this is a bit of a bridge too far politically. Also, without the institutional support that a "new" Fannie could provide, subsidies may not do enough to protect homeownership while stopping the insane focus on "homebuyership," to steal a phrase from the Center for Responsible Lending. That said, we really, really need to reconsider the subsidy balance between owning and renting housing.
All of this comes as Barney Frank freaks out the world's investors this morning by making an obvious comment: Even though the government backs Fannie Mae and Freddie Mac, you shouldn't treat investments in the institutions as Treasury bonds, because Congress is really reluctant to bail them out again.
-- Tim Fernholz
