The Real Estate Bloggers

Do Our Politicians Really Want To Fix Freddie Mac and Fannie Mae?

Posted: 28 Sep 2010 06:21 AM PDT

As we head to the end of the 2010 election cycle, Republican’s are announcing in their Pledge to America that they want an end to the government takeover of Freddie Mac and Fannie Mae.

Democrat’s meanwhile like the idea of the home lending industry being under government control so that it can influence housing policy from a fiscal level.

Yet we all know that dismantling these programs will create even more uncertainty in the housing and mortgage markets. The most likely result is lower housing prices and higher interest rates. Something I think no politician is really eager to see happen, and no one in the real estate industry can cope with right now.

So what is the answer. David Reilly at the Wall Street Journal thinks the ultimate goal is gridlock and fingerpointing. If the Republicans take over Congress with the Democrat Obama in the White House everyone can blame each other, rally their bases, and blame each other in full voice.

While doing absolutely nothing but take the lobbyist’s money every step of the way.

You know, the Washington Way.

Personally I would love to see a 5 year plan for unwinding the housing industry from the Federal Government. We are not going to change the landscape overnight without adding even more pain into an already beat up industry. However, a prudent plan for banks to start adding solid and prudent loans to their balance sheets while allowing the glut of bad loans to slowly work their way out of the system would be beneficial.

It is like an antibiotic treating an infection. You do not lop off the limb that has the infection. Modern medicine has progressed beyond that point. But a 10 day session of antibiotics could just make everything heal correctly.

Let’s hope prudent minds and not political hyperbole address the big issues in the housing market in the coming year.

For all the talk, paralysis may be more likely, especially if elections change control in Congress. And secretly, this may be just what politicians from both parties prefer.

Necessary changes to the mortgage-finance system will be disruptive. Consider that Fannie and Freddie between them guarantee or own $5.4 trillion in mortgages. It would be a tall order for the banking system suddenly to step up and take on the risk on all new mortgages.

Scrapping guarantees would likely send mortgage rates up and house prices down. That would ultimately help set a clearing price for housing. But it would hardly score political points, given that housing accounts for 25% of U.S. households’ assets, according to the Federal Reserve.

Granting full government backing to mortgages, on the other hand, would add to already excessive U.S. debt and result in even greater distortion of housing markets, possibly paving the way for worse crises. via the WSJ

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Do Our Politicians Really Want To Fix Freddie Mac and Fannie Mae?