Government Out of Housing Market
Let’s cut right to the chase today: Fannie and Freddie are on their way out and private capital is on its way in. You can’t put it more simply than that. The government currently guarantees 9 out of every 10 loans in one way or another and that’s just too much risk for taxpayers. It’s also something that has driven private investors out of the field almost entirely by making them unable to compete. I mean, banks can fail, but the government can’t (Tunisia and Egypt aside, of course).
So the Obama administration has laid out a seven year plan to end government involvement in the housing market, restore consumer confidence, and reinvigorate the private sector with new capital. First to go are Fannie Mae and Freddie Mac, though exactly how that’ll happen is not really clear. Some ideas are being floated, like demanding that they “pretend” that they share the same risks as private institutions. So they’ll need to price their guarantees at the same level.
Their next step will be to lower the limit on government backed loans. The limit is set to drop in October to $625,500. This will open up new areas for banks and other lenders to explore. And over the next ten years Fannie and Freddie must divulge 10% of their portfolios each year.
These are all admirable goals and allowing more private involvement in the housing market is for sure a step in the right direction. But what makes anyone think that the underlying problems that got us into this mess in the first place have been solved? What guarantees do we have that dirty practices won’t become par for the course just as soon as banks can move in?
I don’t see the essential problems addresses anywhere. So, though the government knows what road their on, they don’t know what’s waiting for them at the end of the drive.
