The Obama administration is releasing a white paper today with it’s suggestions to reform the housing market, and the National Association of Realtors is up in arms. It’s been circulating some “talking points” and it has some dire predictions:
The Obama Administration and some members of Congress want to turn the clock back on the housing market to the 1930s, turning us into a nation of renters and making home ownership something that only the rich can afford. Obama is turning the American Dream into the American Nightmare for the nation’s middle- and lowerincome earners.
– Joe T. Plumber, who makes $25 an hour, won’t be able to own a home under some of the policies being debated/considered by President Obama and the U.S. Congress.
It’s not exactly easy for Mr. Plumber to buy a house in the current market, and it’s hard to see why this would be worse, but that doesn’t stop the NAR from offering this rather shameless bit of self promotion:
– There is no one standing up for America’s 75 million home owners in this debate except the NATIONAL ASSOCIATION OF REALTORS®, the nation’s leading advocate on home ownership.
The NAR is afraid of what will happen should the government’s involvement in the mortgage market be scaled back. Here’s what they say will happen if the government were to reduce it’s 90% share of the mortgage market:
Cutting back significantly on Fannie Mae and Freddie Mac’s involvement in the mortgage
1. Reduce housing access and affordability for those who are willing and able to
become home owners
2. Create higher profits for America’s big banks.
3. Create more “too big to fail” banks, leading to greater consumer risk and taxpayer exposure
4. Hurt the economy and hinder job creation and growth
I would counter with the following–
1. If the government were out of the mortgage market, undoubtedly rates would rise. Private lenders would insist on being compensated for risk without a government backstop. Higher rates mean lower home prices though. Lower prices are a lower risk for banks, and maybe poor Joe might finally stand a chance of buying that house he hasn’t been able to buy in years.
2. Remember all those lenders who “imploded” because of massive losses? There’s nothing wrong with an honest profit; solvent lenders are a good thing. Profitable banks beat having government mortgage lenders losing money hand over fist– at taxpayer expense.
3. There’s no reason that eliminating Fannie and Freddie would create more TBTF banks. Those are a result of banking regulations and securitization, not private lending. TBTF banks are a relatively new phenomenon, but private lending is not.
4. The economy is being hurt by a stagnant housing market and a government that is eating massive losses from bad mortgages. It’s hurting already.
The irony is that without some sort of GSE reform, we will be a nation of renters. What is an underwater homeowner but a renter? How can you be a home “owner” if you have no equity? And who is either issuing or guaranteeing virtually all of the mortgages these days? That’s right, the GSEs. Let’s reform them and let folks own their own homes again.