The House GOP plan also calls for closing the mortgage lenders — which are now in conservatorship — but would greatly reduce the amount of government guarantees in the mortgage market.
It aims to put private capital as the centerpiece of the mortgage guarantee market, and critics argue that would reduce the availability of the 30-year mortgage or at least make them more expensive.
A middle ground seems feasible here. It’s a positive sign that both Democrats and Republicans want to eliminate and not reform Fannie and Freddie.
Clearly, putting the risk of 90 percent of the mortgage market on a taxpayer-backed agency is not good policy. If the government will continue to guarantee some mortgages — and Republicans say it will even under their plan — there should be shared risk between taxpayers and the private sector, and of course, the borrower.
Under the old system, some banks didn’t pay a lot of attention to the risks of mortgage loans they were making because they knew if the loans went bad, the government would be there to bail them out. A reformed government guarantee system should eliminate that incentive.
Many economists agree forming a household and buying a house creates economic activity that is spread far and wide. But that should be a secondary concern given our experience with taxpayer risk in the mortgage market. Congress and presidents have gotten into trouble trying to create an American Dream that emanates mostly from the government.
The House and Senate owe it to taxpayers and homeowners to come together on a bipartisan solution to this problem that has been hanging around our necks for almost five years now.
As the housing market comes back, we need to make sure the mortgage market doesn’t carry undue risk for taxpayers, borrowers or responsible lenders.
Obama needs to follow through as well on his push to “lay a rock-solid foundation to make sure the kind of crisis we went through never happens again. “