Should the Federal Government Provide Support to the Mortgage Market?
President Obama last week waded into the thicket that is housing finance reform, laying out a new plan to get rid of government-backed mortgage giants Fannie Mae and Freddie Mac. Most housing experts and policymakers agree that the two mortgage companies need to go, and both the House and the Senate already have dueling mortgage finance bills, the former of which passed out of the House Financial Services Committee on a near-party-line vote last month.
The major question at the center of any housing finance reform effort is: Should the government be involved in providing support to the mortgage market? Currently, Fannie Mae and Freddie Mac backstop nearly 90 percent of U.S. mortgages, a vestige of both the financial crisis and the extraordinary power the two entities had before the housing bubble burst.
The House bill, sponsored by Rep. Scott Garrett, R-N.J., would remove federal support for the mortgage market, leaving it in the hands of private entities. The Senate bill, written by Sens. Mark Warner, D-Va., and Bob Corker, R-Tenn., meanwhile, would preserve some federal role in the market by creating a new agency, the "Federal Mortgage Insurance Corporation," to replace Fannie and Freddie. Obama"s plan also embraces a federal role in the market, albeit one in which private investors would be forced to take losses on mortgage securities before taxpayers.
"I believe that our housing system should operate where there's a limited government role and private lending should be the backbone of the housing market," Obama said in remarks last week. House Financial Services Committee Chairman Jeb Hensarling, R-Texas responded: "Our plan … puts private capital at the center of the housing finance system; ends the bailout of Fannie Mae and Freddie Mac; and sustains the 30-year fixed rate mortgage – all goals the president today says he supports." Warner, meanwhile, called the House bill an "ideologically pure exercise that will never have a single Democrat support it."
So should the federal government provide support to the mortgage market? Here is the Debate Club"s take: