February 7, 2011

GSEs need more reform than a move on budget

Arnold Kling

Senior Affiliated Scholar

While waiting for the Treasury’s report on housing reform, various suggestions have been raised, including Rep. Garrett’s proposal to move Fannie and Freddie on budget.  However, this type of move misses the true reform that is needed.

One problem with putting the GSEs on budget is that it would be extremely difficult to get the accounting right.

Instead, the focus needs to remain on reform, including having Congress start to reduce the maximum loan amounts eligible for purchase by the housing agencies.

This is needed in order to create room for private lenders to enter the mortgage market while Congress debates the process of how to reform the system as a whole.  As it stands now, the loan limits are currently set so high that essentially the entire mortgage market has been set aside for the agencies.