February 9, 2011

What's to be done with GSEs?

Fannie and Freddie lowered mortgage rates by about 30 basis points at most.  And they tried increasing homeownership rates to unsustainable levels while costing taxpayers hundreds of billions of dollars. So, will we miss Fannie and Freddie? No, in the same way that we don't miss gas rationing.

Each of the panelists before the House Financial Services Committee hearing on GSE reform (with one exception) discuss strategies to kill off Fannie and Freddie over a 5 year detoxification program. The Center for American Progress is still pushing the 30 year fixed rate mortgage and feels that government leviathan is needed to accomplish this goal. Government leviathan is not needed or wanted, at least by those that celebrate fiscal responsibility.

We have to bear in mind that Fannie/Freddie and FHA have almost 99% of the mortgage market. This is the problem when government is allowed to crowd out the private sector. It is going to take time to get the private sector back into the game, particularly given the financial condition of many large banks.