Economics

Your Civil Right to a Government-Backed, Fixed Rate Mortgage

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The Wall Street Journal's Nick Timiraos looks at how Fannie Mae and Freddie Mac "offered a convenient off-budget means of subsidizing housing that continues today," and asks the (not-so) tough question: "Should the government continue to promote long-term, fixed-rate loans?" I could answer that question with one word—nope!—but the article's answer is worth reading too:

Feed me, Seymour!

Higher employment volatility and divorce rates have contributed to a "rate of homeownership that is more volatile," and less compatible with long-term mortgages, says Raj Date, executive director of the Cambridge Winter Center for Financial Institutions Policy, a think tank that researches financial-institution policy. Moving to a fully private market would raise housing costs, he says, but it would better protect taxpayers. [emphasis added]

But that approach would likely be unpopular. Americans have come to regard fixed-rate loans "as part of their civil rights," says Susan Woodward, a former chief economist for the Department of Housing and Urban Development and the Securities and Exchange Commission.

Is it true that Americans believe in the inalienable right to a cheap, impossible-to-foreclose-on mortgage? Maybe, maybe not; I can't say I've seen any polling data on the subject. But even if Pew found that 94 percent of voters wanted it added to the Bill of Rights, that wouldn't constitute a good reason to give it to them. Shouldn't sensible policy aim to dissuade citizens from free-lunch-focused economic fantasies?

The article goes on to discuss a forthcoming proposal by former Bush administration officials to privatize Fannie and Freddie and then allow both to purchase explicit government backing. That sounds better than the current setup, which might as well be an explicit plan to feed tens of billions of taxpayer dollars to the Sarlacc pit monster. But their idea is predicated on the assumption that government backstopping of the mortgage market is inevitable and unavoidable. It shouldn't be. And if it is, part of the reason is that current and former administration officials treat it as such.

Here's the Reason Foundation's Anthony Randazzo on why the government ought to get out of the mortgage game entirely.