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Tipsheet

Fannie Maehem

The Washington Post is reporting that the Obama Administration will be taking up the cause of reforming Fannie Mae, Freddie Mac and the FHA next week. This is encouraging for conservatives have long felt that the government's role in subsidizing homeownership was the kindling for the bonfire of the financial meltdown. The devil will be, as always, in the details.

Despite having been the recipient of hundreds of billions of dollars of taxpayer money in the wake of the financial crisis and likely being subject to far more, FnMae, FrMac & the FHA are still backing over 95% of new mortgages. This is a scary statistic.

Due to their sheer size, we can't expect to immediately halt all taxpayer subsidization of new mortgages. That would grind the housing market to a halt, elminate the possibility of a market bounce-back and likely lead to even more foreclosures. The trick is to wind down the GSEs' involvement in the housing market strictly, responsibly and in a timely fashion.

There are rumors, for example, that the GSEs will be exempted from having to take a 5% stake in investments that they back. This would be a terrible mistake. Yes, the 5% provision would lead to more expensive mortgages with bigger down- and interest-payments on the part of homebuyers, but the way to a recovered housing market is not through another irresponsible bubble.

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