Housing Policy

It's Never the Right Time to Reform Fannie and Freddie

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Formerly government-sponsored—and now government owned—mortgage giants Fannie Mae and Freddie Mac are projected to add about $290 billion to America's taxpayer tab this year alone. You might think this would make them ripe for swift reform. But instead, the Obama administration stalled throughout the year, leaving out substantive changes to the two entities from its recent financial overhaul. Now, reports the Wall Street Journal, it looks like some of our nation's housing policy braniacs may be cooking up more excuses to delay action:

You're so government money, baby, and you don't even know it.

All year long, the Obama administration has defended its decision to postpone the debate over the fate of Fannie Mae and Freddie Mac by arguing that it first needed to put the housing market back on track.
Now, as mortgage-industry executives and government officials prepare to meet for a summit on Tuesday to begin those discussions in earnest, policy makers are facing an unexpected problem: The housing market appears to be stalling.

That will make officials more cautious in considering any dramatic overhaul, because a shaky outlook further underscores the market's heavy dependence on Fannie and Freddie, which together with the Federal Housing Administration are backstopping nine out of every 10 new loans.

"It pulls the debate in the opposite direction," said Howard Glaser, an industry consultant. "If we're stuck in the midst of this semi-permanent housing crisis, the question of the federal role becomes almost intractable."

Hold on a minute. Why is the housing market going soft? Part of the reason is almost certainly that the extended federal home-buyer's tax credit, which required buyers to sign contracts before the end of April and close by the end of June, massively inflated the housing market at the beginning of the year. Lots of sales that probably would've otherwise occurred after those deadlines were simply moved back a few months—and federally subsidized as a result. So the uptick in the housing market earlier this year likely wasn't a natural feature of the market; it was artificially stimulated. Now, with the federal adrenaline shot wearing off, it's slowing down. Is that really a reason to stimulate it more? Maybe I don't actually want to hear the answer to that.

The Reason Foundation's Anthony Randazzo argued that it's time to kick Freddie and Fannie out of the housing market back in March.