Treasury Secretary Timothy Geithner called for changes to be made within the US mortgage market at a recent press conference. It was not a regulatory or legal order, but rather a statement of purpose. However, it is expected that he will tell Fannie Mae and Freddie Mac to get their houses in order within the next year. Geithner also reminded the audience that the taxpayers can’t afford to pick up the check for the kind of reckless practices they have had to pay for again.
Geithner has no real plan yet
Freddie Mac and Fannie Mae have not been told to do anything yet. Geithner was essentially announcing a mission statement, and there were some things he made clear. First, Fannie and Freddie will not be resuming business within the manner they were conducting it before the market meltdown. He also highlighted the two mortgage giants would not be allowed to try and outmuscle the private market again. According to Reuters, he also pointed out the current housing market wasn’t going to last within the long term.
No consensus yet
Housing industry insiders and economists vary, as they often do, on how best to reform the housing industry. Geithner did advocate retaining mortgage underwriting through Fannie and Freddie, as government backing for mortgages is a practice that all industrial nations participate it. Some, such as Bill Gross, the co-founder of the Pacific Investment Management Co., argue full nationalization is necessary. Gross argues the private market in mortgage underwriting and lending cannot make an effective return, according to Businessweek.
Something does have to change
What to do with Freddie and Fannie is subject to wild speculation, but few think nothing should be done. The government has already, according to NPR, spent $ 150 billion on the mortgage houses. For the first half of this year, 89 percent of all mortgages granted in America were backed by Freddie Mac, Fannie Mae and Ginnie Mae. Unlike Fannie and Freddie, Ginnie Mae securitizes only some mortgages, doesn’t lend to any person, and is entirely part of the US government.
Additional reading
Reuters
reuters.com/article/idUSTRE67G3E820100817
Business Week
businessweek.com/news/2010-08-17/gross-urges-full-nationalization-of-housing-finance.html
NPR
npr.org/blogs/money/2010/08/17/129250765/socialized-housing-for-everyone
