To Truly Reform Mortgage Finance System, Input Must Come from Outside Washington
Who are unconventional stakeholders who can help rally support for housing?
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Perhaps the fundamental flaw behind U.S. housing policy is that it has been designed by and for the interests of industry insiders. Yes, lofty phrases to pull the heart-strings have been included in various goals and purposes, but for the most part the substance of housing policy is crafted in a manner acceptable to the politically powerful. Instead of trying to rally the broader public, the ultimate beneficiaries and funders of federal housing programs, to the cause of insiders, we should try to tap the broader public as an avenue for blunting the attempts of industry interests to enrich themselves via the public purse.
There’s an old quip in Washington that goes, “if you’re not at the table, you’re on the menu”. Few places have that held more true than in housing policy. The interests of the taxpayer and the broader public have been repeatedly ignored or sacrificed. The unconventional groups I would recommend reaching out to are those involved in taxpayer advocacy and education.
While a general consensus has developed that Fannie Mae and Freddie Mac should be eliminated, we run the very real risk that under the guise of reform a system similar to the previous broken GSE model is re-created. The sad fact is that most Washington insiders have only one problem with Fannie and Freddie: the politically toxic nature of their names. Many in Washington would be only too happy to do little more than change the names on the doors. After all the crisis has resulted in an expanded role for Washington in our economy that has largely benefited Washington insiders. The costs of the recent recession, with its 8 million job losses, were borne largely outside the confines of the Beltway.
We have perhaps a once in a generation opportunity to remake our mortgage finance system. Previous attempts, such as that after the Savings and Loan Crisis, generally sowed the seeds of the next crisis. If we are to avoid simply laying the ground work for another crisis, more reliance and input must come from outside the same Washington interests responsible for our current mess.
Mark A. Calabria is director of financial regulation studies at the Cato Institute.
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