The Washington consensus on what to do about Fannie Mae and Freddie Mac, the government-owned mortgage insurance companies that collapsed during the 2008 financial crisis, looks a lot like Obamacare, an analysis by
ProPublica concludes.
The investigative journalism project said that in both cases, a government-sponsored program is abetted by private sector operations, and characterized by government regulations and subsidies.
“The leading proposals involve getting rid of the ‘Frannies’ to have private companies create mortgage-backed securities,” ProPublica said of the mortgage reform efforts. “The government’s role would be to insure some of those mortgage-backed securities, to subsidize the home purchases of the disadvantaged and to regulate mortgage-market players to prevent predatory practices and risk-taking that could lead to taxpayer bailouts.”
Editor's Note: Govt Prohibited From Helping Seniors (Shocking)
While some conservatives are pushing for the government to exit the mortgage business entirely, liberals are focused on expanding and protecting housing affordability and access.
The more middle-of-the-road public-private approach to mortgage reform, the one that seems a lot like Obamacare to ProPublica, is embodied in a non-partisan bill created by Sen. Bob Corker, R-Tenn., and Sen. Mark Warner, D-Va.
ProPublica concludes a large government role in housing is probably unavoidable.
“As even centrist Republicans agree, the government is and always will be on the hook if the housing market crashes. So many Americans own homes that the government will intervene during a crash.”
The journalism project said from 1938 to 1968, Fannie Mae was part of the government, not the hybrid public-private enterprise it is today. During that time, home ownership expanded by about 20 percent and there were no housing crashes.
Fannie and Freddie’s problem arose later, after they became publicly traded companies, ProPublica noted. To create more shareholder value, the companies took more risk. And then they lobbied successfully to reduce their capital requirements to take even more risk, which ultimately ended in disaster and helped precipitate the housing meltdown.
“The danger of the untested reform proposals is that they may create new versions of this distortion, and bring about more reckless risk-taking. In addition, the proposals benefit the banks more clearly than they do homeowners.”
Reuters reported Fannie and Freddie are now close to covering the cost of their multi-billion dollar 2008 bailout, thanks to a tax-related windfall, rising home prices, falling mortgage delinquencies and higher loan fees.
The companies, which own or guarantee about two-thirds of all U.S. home loans, were seized by the government in the trough of the financial crisis because of losses that threatened their solvency.
© 2024 Newsmax Finance. All rights reserved.