07.31.2010 0

Too Hot Not to Note: The Future of Housing Finance

  • On: 08/18/2010 01:23:49
  • In: Economy
  • ALG Editor’s Note: In the following oped from the Wall Street Journal featured yesterday, former Fannie Mae chief credit officer Edward Pinto makes the case against an explicit government guarantee of government mortgage giants Fannie Mae and Freddie Mac:

    The Future of Housing Finance

    By Edward Pinto

    Today the Obama administration will begin a discussion on how to overhaul our nationalized housing finance system. Moderated by Treasury Secretary Timothy Geithner and Shaun Donovan, secretary of the Department of Housing and Urban Development (HUD), the “Conference on the Future of Housing Finance” seeks answers to what went wrong in the U.S. housing market. This promises to be the next big domestic policy debate—one that could mold housing finance for a generation or more. But the early signs of where policy makers might be headed are not promising.

    A consensus is building around a three-part grand bargain:

    • An explicit federal guarantee of a large portion of the mortgage-backed securities created to finance American’s home mortgages;
    • A tax on these securities to fund low-income housing initiatives; and
    • A requirement that issuers of securities meet affordable housing mandates.

    This is a dead end for two reasons. First, while supporters of an explicit federal guarantee tell us it will never be called upon, Americans have read this book before and know how it ends.

    The second is much less well known but equally deadly: the central role in the recent real estate collapse that was played by the federal affordable housing policy created by Congress and implemented since the 1990s by HUD and banking regulators.

    Get full story here from the Wall Street Journal.

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