In overhauling Fannie Mae and Freddie Mac, it's better to be late than sorry
Wednesday, February 2, 2011; 9:49 PM
To hear congressional Republicans tell it, the Obama administration is much like the harried white rabbit that mutters, "Oh dear! Oh dear! I shall be too late!" in Lewis Carroll's "Alice's Adventures in Wonderland."
It is true that the administration will be late in delivering its plan for overhauling mortgage giants Fannie Mae and Freddie Mac, as called for in the Dodd-Frank financial reform law. These housing power players, responsible for keeping mortgage money flowing, were taken over by the government during the financial crisis. Now the government has to figure out what to do with them.
"It is clear the administration cannot make any tough choices required to protect taxpayers and end the bailout of Fannie and Freddie," Rep. Spencer Bachus (R-Ala.) said in a statement on Monday, the day the report was due.
As if that weren't enough of a smack down, Bachus, chairman of the House Financial Services Committee, went on to say that "taxpayers do not need more empty promises for reform, they need a real plan to stop the administration and Treasury Department from throwing more taxpayer dollars down the Fannie and Freddie rat hole." Rat hole. Rabbit hole. It's all the same. Just like Alice, down we will have to go into a world where insults are slung, blame is assigned and numerous recommendations are made about what to do with Fannie and Freddie.
But I'd rather the administration be late than rushed in dealing with the two entities, because whatever happens to them will greatly affect the future of homeownership.
The administration, working with Treasury and the Department of Housing and Urban Development, expects to release its report by mid-month, Treasury spokesman Steve Adamske said.
"We know that the situation that we have now is untenable," he said. "We are looking at how to transition from a government having too big a footprint in the marketplace to one that has the private sector playing the dominant role in the mortgage market." Before their takeover, Fannie and Freddie were private shareholder-owned companies with public responsibilities. The federal bailout has cost the government $131 billion, according to the Federal Housing Finance Agency.
A crucial aspect surrounding the debate about the overhaul of Fannie and Freddie concerns how to keep money flowing in support of homeownership without creating another housing crisis in which people are allowed or encouraged to borrow more than they can handle.
No question, Fannie and Freddie had major issues. But it's also true that the companies helped many Americans create wealth for their families. Not the instant wealth of inflated home prices, but the kind of net worth where people bought homes, stayed in them for years and built up real equity that they could live off when they eventually sold.
If we dismantle Fannie and Freddie and entrust their missions to make homeownership affordable solely or largely to the private sector, will modest-income families still be able to afford a home? Or should we accept that we are moving to an era in which homeownership is not something to which everyone should aspire?
I rented an apartment for one year after I graduated from college. During the entire year, my grandmother criticized me for throwing good money away. She ordered me to come back to live with her in her paid-for home or else buy a place of my own.
I bought a condominium.
Big Mama knew that I was ready for homeownership - or rather, that I was ready to handle a mortgage. I had savings, no debt and was frugal. Nevertheless, her message that renters are financial losers was wrong. When you rent, you are getting something in return: a roof over your head. You also have flexibility when you rent - you can move to where the jobs are. Many families in this economy won't move to better their employment situations because they can't sell their homes.
Yes, we need a new model to ensure an affordable flow of money for people ready to take on mortgages. But this debate has to go beyond the overhaul of Fannie and Freddie. Although the government should continue to help make sure there's affordable housing (rental and owner-occupied), we must stop saying that everyone should be a homeowner. We have to stop creating policies that make people think they have failed financially if they don't buy a home.
We have hindsight now. We know what went wrong with the housing market, but let's not hastily try to fix things because of arbitrary deadlines.
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