The Treasury Department outlined three paths for reforming housing
finance early last year, including one that would dramatically shrink
the government's role.
But the Federal Reserve has effectively cast its vote against market-driven mortgage reform with its latest round of quantitative easing.
The central bank's plan, announced Sept. 13, to boost hiring by purchasing $40 billion — or more — in government-guaranteed mortgage securities each month depends on Uncle Sam being a force in home loans.
The Fed intervention deals a blow to free-market conservatives pushing for a firm limit on, if not an end to, government-guaranteed mortgages. Now, not only do they have to take on the housing industry and big bond investors, they'll also, in effect, have to fight the Fed.
While the debate over the future of Fannie Mae and Freddie Mac has been stuck, like almost everything else in Washington, the issue looms as a key policy challenge for the next president.
Moral Hazard
Since the mortgage crisis escalated in 2007, the government has backed roughly nine in 10 mortgages. While there is much blame to go around for the housing bubble, the moral hazard of government guarantees helped it reach extreme levels by providing a false sense of security.
The economic cost of the inflating and bursting of the bubble has been many times the nearly $190 billion direct taxpayer cost of bailing out Fannie and Freddie.
Read more: http://news.investors.com/ibd-editorials-perspective/092412-626818-fed-qe3-needs-government-guaranteed-mortgages.htm?src=HPLNews
But the Federal Reserve has effectively cast its vote against market-driven mortgage reform with its latest round of quantitative easing.
The central bank's plan, announced Sept. 13, to boost hiring by purchasing $40 billion — or more — in government-guaranteed mortgage securities each month depends on Uncle Sam being a force in home loans.
The Fed intervention deals a blow to free-market conservatives pushing for a firm limit on, if not an end to, government-guaranteed mortgages. Now, not only do they have to take on the housing industry and big bond investors, they'll also, in effect, have to fight the Fed.
While the debate over the future of Fannie Mae and Freddie Mac has been stuck, like almost everything else in Washington, the issue looms as a key policy challenge for the next president.
Moral Hazard
Since the mortgage crisis escalated in 2007, the government has backed roughly nine in 10 mortgages. While there is much blame to go around for the housing bubble, the moral hazard of government guarantees helped it reach extreme levels by providing a false sense of security.
The economic cost of the inflating and bursting of the bubble has been many times the nearly $190 billion direct taxpayer cost of bailing out Fannie and Freddie.
Read more: http://news.investors.com/ibd-editorials-perspective/092412-626818-fed-qe3-needs-government-guaranteed-mortgages.htm?src=HPLNews
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