The Next Housing Bust…GSEs, Risk, and Home Loans

by | Sep 17, 2021 | Financing, Housing and Land Use | 0 comments

“This sets up the conditions for the next housing bust. We have seen this movie twice before and know the ending.”

From an Op Ed by Ed Pinto of the AEI Housing Center:

A sharp change in marching orders for Fannie Mae (FNMA) and Freddie Mac (The Federal Home Loan Mortgage Corporation (FHLMC):

From a future as privatized companies to a future of being used to accumulate the risk of the government’s housing policies and increase the risk to taxpayers.

This sets up the conditions for the next housing bust. We have seen this movie twice before and know the ending.

According to Ed:

I. The housing finance market—like other US industries and housing finance systems in most other developed countries—can and should function principally as a private market, not a government-dominated one.

II. Ensuring mortgage credit quality, and fostering the accumulation of adequate capital behind housing risk, can create a robust housing investment market without a government guarantee.

III. All programs for assisting low-income families to become homeowners should be on-budget and should limit risks to both homeowners and taxpayers.

IV. Fannie Mae and Freddie Mac should be truly privatized, with their hidden subsidies and government-sponsored privileges eliminated over time.

“None of this will happen in the near term, and the opposite of these principles will probably be followed by the current administration.

Nonetheless, the principles define the housing finance direction that a future, market-oriented Congress and administration should take. In the meantime, all mortgage actors should try to protect themselves against the increased credit risk that Fannie and Freddie, under orders from the FHFA, will be generating.”

To view the Op-Ed online

Edward J. Pinto is an American Enterprise Institute (AEI) senior fellow and director of AEI’s Housing Center. The Center monitors the US markets using a unique set of Housing Market Indicators. Active in housing finance for over 40 years, he was an executive vice president and chief credit officer for Fannie Mae until the late 1980s.

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.