Tags: Privatize | Mortgage | Finance | System

Experts: It's Time to Privatize Mortgage Finance System

By    |   Monday, 19 May 2014 03:12 PM

It's been five years since Fannie Mae and Freddie Mac collapsed and were put into government conservatorship, and it's long past time to privatize the mortgage finance giants, some experts say.

If they continue as is, the government will continue subsidizing mortgage borrowing and will be at risk of bailing them out again, argues Lawrence J. White, professor of economics at New York University Stern School of Business, in an article for CNBC.

The government should still help properly qualified, low- and moderate-income home buyers, says White, a board member of the Federal Home Loan Bank Board.

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"But this assistance shouldn't extend to subsidizing mortgage finance more widely, which has primarily encouraged tens of millions of home buyers to buy bigger houses than they otherwise would and to leverage themselves excessively. What worthwhile public function is served by that?"

Fannie and Freddie should be replaced by banks and other savings institutions and private-market securitizations. Private-market players are "sadder and wiser" since the private securitizations collapsed in 2008, White asserts.

"They will be examining the securitization bundles for safe mortgages by creditworthy borrowers. The days of the 'liar loans' and other flim-flam arrangements are, fortunately, history."

Life insurance companies and pension funds, with more than $12 trillion to invest, are natural buyers of the private securities.

New government regulations and can help revive private securitizations. Government rules can make sure private guarantors of mortgage securities have the financial wherewithal to honor commitments and can make sure borrowers have good credit and sizable down payments.

"In sum, private finance can — and should — again become the dominant mode for residential mortgages in the U.S."

The Senate Banking Committee approved a bill proposed by Senators Tim Johnson (D-SD) and Mike Crapo (R-Idaho) that would shrink the mortgage giants. The vote was 13-9 as the bill garnered opposition.

"There has been an ill-advised and misplaced push to get rid of Fannie Mae and Freddie Mac. Doing so would be a mistake," states John Taylor, National Community Reinvestment Coalition President, states in an article for the Huffington Post.

By eliminating affordable housing goals, the bill would reduce the number of people able to obtain home loans, Taylor warns.

"The bottom line is that less conventional lending to creditworthy families means fewer homeowners, which hurts communities and the economy at large."

The companies should be well regulated, be required to hold sufficient capital to operate transparently. "But given the current legislation, eliminating them would be reckless and
foolish," Taylor said.

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It's been five years since Fannie Mae and Freddie Mac collapsed and were put into government conservatorship, and it's long past time to privatize the mortgage finance giants, some experts say.
Privatize, Mortgage, Finance, System
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2014-12-19
Monday, 19 May 2014 03:12 PM
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