WASHINGTON—A government proposal to phase out ownership of mortgage giants Fannie Mae and Freddie Mac has brought to the fore Americans’ dream of home ownership and how to preserve it within private markets.
“I really believe that home ownership is part of the American dream for a lot people, and I believe that you have to start from that place, but it’s got to be sustainable. That dream can become a nightmare if it is unsustainable,” said Jared Bernstein, economic adviser to Vice President Joe Biden, and also the executive director of the Middle Class Task Force.
As the housing bubble crash of 2008 showed, “it can become a slide out of the middle class as much as a ladder into it,” Bernstein said on Thursday in a discussion with the Atlantic and National Journal.
The senior economist’s comments reflect the views of a white paper released in February outlining the government’s position on housing market reform. “Reforming America’s Housing Finance Market” was released by the Department of Treasury and HUD.
“The housing finance system must be reformed. It is the vital link to sustainable home ownership and rental options for millions of Americans, and it is central to our nation’s economy,” states the paper.
The administration’s proposal centers on gradually winding down and eliminating the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
“I really believe that home ownership is part of the American dream for a lot people, and I believe that you have to start from that place, but it’s got to be sustainable. That dream can become a nightmare if it is unsustainable,” said Jared Bernstein, economic adviser to Vice President Joe Biden, and also the executive director of the Middle Class Task Force.
As the housing bubble crash of 2008 showed, “it can become a slide out of the middle class as much as a ladder into it,” Bernstein said on Thursday in a discussion with the Atlantic and National Journal.
The senior economist’s comments reflect the views of a white paper released in February outlining the government’s position on housing market reform. “Reforming America’s Housing Finance Market” was released by the Department of Treasury and HUD.
“The housing finance system must be reformed. It is the vital link to sustainable home ownership and rental options for millions of Americans, and it is central to our nation’s economy,” states the paper.
The administration’s proposal centers on gradually winding down and eliminating the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
The downfall of these institutions, which drove them into government conservatorship in 2008, have been the most costly portion of the financial bailouts, registering $145 billion in losses. The Congressional Budget Office has estimated the final tab could reach $389 billion.
Once the bulk of the housing market has been absorbed by the private market, the government would remain involved in a limited manner through the Federal Housing Administration (FHA), USDA and Veterans Affairs.
The government is also committed to reforming and strengthening the FHA; to affordable rental housing; to measures to ensure that capital is available to all Americans, and to a flexible and transparent funding source for “affordability initiatives.”
Fannie and Freddie are both giant mortgage securities institutions which were created by Acts of Congress in order to make home ownership easier for Americans. The institutions were effective for decades, but were heavily implicated in the crash of the housing market in 2008.
The housing market is one of the areas that we worry a lot about, said Jared Bernstein, economic adviser to Vice President Joe Bidin, and also the executive director of the Middle Class Task Force.
“You are happy to see the toxins getting out of the system and the correction well under way, but the fact that you are bumping along the bottom more than you are increasing and contributing is problematic,” said Bernstein.
The housing market employs approximately 108 million Americans. It is currently down 7 million to 8 million jobs.
The government’s plan to wind down Fannie and Freddie will eventually give the private market the lion’s share of the mortgage business.
The action will be one part of a three-pronged approach to housing reform, including full implementation of the Dodd-Frank financial reform act and increased regulation of mortgage and financing procedures to try and prevent future problems.
AEI housing finance experts Peter J. Wallison, Alex J. Pollock, and Edward Pinto produced a draft proposal prior to the release of the administration white paper, where they argued that every effort must be made to get the government out of the housing market.
The administration’s proposal “broke new ground by including a private mortgage market as one of the three options for structuring the housing finance market in the future—a pivotal action, and a first for a Democratic administration,” said the scholars in a press statement.
Wallison said on Thursday in a press conference at the National Press Club that he had met with administration officials and responded to their objections and concerns.
To keep the markets clean and stable, the scholars recommend that the government focus on making sure that the majority of mortgages sold by private lenders are prime. This would limit most mortgages to customers with good credit ratings and an ability to pay.
Subprime or riskier mortgages can be supported by government social policies, they say, but programs should be within budget, and small in scope.
Once the bulk of the housing market has been absorbed by the private market, the government would remain involved in a limited manner through the Federal Housing Administration (FHA), USDA and Veterans Affairs.
The government is also committed to reforming and strengthening the FHA; to affordable rental housing; to measures to ensure that capital is available to all Americans, and to a flexible and transparent funding source for “affordability initiatives.”
Fannie and Freddie are both giant mortgage securities institutions which were created by Acts of Congress in order to make home ownership easier for Americans. The institutions were effective for decades, but were heavily implicated in the crash of the housing market in 2008.
The housing market is one of the areas that we worry a lot about, said Jared Bernstein, economic adviser to Vice President Joe Bidin, and also the executive director of the Middle Class Task Force.
“You are happy to see the toxins getting out of the system and the correction well under way, but the fact that you are bumping along the bottom more than you are increasing and contributing is problematic,” said Bernstein.
The housing market employs approximately 108 million Americans. It is currently down 7 million to 8 million jobs.
Housing Reform
The government’s plan to wind down Fannie and Freddie will eventually give the private market the lion’s share of the mortgage business.
The action will be one part of a three-pronged approach to housing reform, including full implementation of the Dodd-Frank financial reform act and increased regulation of mortgage and financing procedures to try and prevent future problems.
AEI housing finance experts Peter J. Wallison, Alex J. Pollock, and Edward Pinto produced a draft proposal prior to the release of the administration white paper, where they argued that every effort must be made to get the government out of the housing market.
The administration’s proposal “broke new ground by including a private mortgage market as one of the three options for structuring the housing finance market in the future—a pivotal action, and a first for a Democratic administration,” said the scholars in a press statement.
Wallison said on Thursday in a press conference at the National Press Club that he had met with administration officials and responded to their objections and concerns.
To keep the markets clean and stable, the scholars recommend that the government focus on making sure that the majority of mortgages sold by private lenders are prime. This would limit most mortgages to customers with good credit ratings and an ability to pay.
Subprime or riskier mortgages can be supported by government social policies, they say, but programs should be within budget, and small in scope.
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