Since the credit crunch began in 2007, private sector financing for residential mortgages has been virtually non-existent. At the end of 2010, government-backed organizations—including Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA)—were financing more than 90% of all mortgages in the U.S. In addition, the federal government has been using both fiscal policy and monetary policy to increase liquidity for home purchases, put downward pressure on mortgage interest rates and boost housing values. However, the various federal programs have only served to provide temporary relief from falling housing prices, delaying the necessary clearing of surplus homes in the marketplace. The programs of the past three years have continued decades of federal housing policy that ultimately created a very unstable market.
There is widespread consensus that the current system is unsustainable. Even long-time supporters of Fannie Mae and Freddie Mac, such as Rep. Barney Frank (D-MA) have conceded that the government-sponsored enterprises (GSE) need to be dissolved. However, there is a growing argument from a range of “interest” groups proposing that federal intervention and guarantees of some kind are necessary for the future of housing finance. This is far from true. Prior interventions and guarantees have a checkered past that leaves no doubt that such proposals will once again privatize gains and leave the taxpayers with the losses. The most logical path forward to a sustainable housing market is a complete privatization of the housing finance system.
Privatizing the Housing Finance System
- The Last Two Decades of Housing Policy in Brief
- Post-Bubble Policies Continue the Trend
- New Programs Fail to Generate Sustainable Growth
- The Results of Failed Federal Housing Programs
- Building a Stable and Sustainable Housing Market
This policy study is an excerpt from Reason’s Annual Privatization Report 2010 edited by Leonard Gilroy.
For an extended look at Reason's ideas for housing finance reform, see Near-term Ideas Ideas for Mortgage Finance Reform.