Social reforms real barrier to housing reforms
New York, Aug. 18: In March of 2000, American homeowners got a scare. Mr Gary Gensler, a Treasury undersecretary, threw his support behind legislation whose impact could have jacked mortgage rates up to levels that would fly in the face of what lawmakers say is good for the nation: expanding homeownership.
He wanted the Treasury to cut ties with Fannie Mae and Freddie Mac — companies whose federal charters make them the key vehicles for Washington’s housing policy and mortgage market intervention.
It was a test of the companies’ political backing, and the companies won. Lobbyists killed the effort amid a housing boom cheered by homebuyers and their political representatives, underscoring the power of the American dream of home ownership and its ability to drive the political and financial agenda.
A decade and a wrenching financial crisis later, social agendas remain the stumbling block for the “fundamental change” demanded on Tuesday by the Obama administration as it tries to fix a housing finance system central to a crisis rivalled only by the Great Depression.
The treasury secretary, Mr Timothy Geithner, addressing major lenders and investors, advocated a government role in reforms needed to cushion the economy and raised the question of whether the private sector could provide a home financing regime with enough safeguards to avoid another crisis.
The challenge would be to price a guarantee in a way that protects taxpayers, he said.
“What he forgot to say was this race was dictated by the political forces who were more interested in their future election campaigns than any housing programmes,” said Mr Alfred DelliBovi, president of the Federal Home Loan Bank of New York.
“We’ll get a redesigned model that will involve the government and the private sector, and I predict it will work very well until someone comes along and pushes it further than it was designed to go,” he added.
The conference on Tuesday, included input from lenders, which could compete with Fannie Mae and Freddie Mac in providing credit, was billed as a “listening session” to help the administration develop a firmer plan.
It would be the latest starting point in the debate over how to recreate a housing finance system that has been deeply embedded in the American psyche since World War II.
Middle-class American voters have more wealth tied up in their homes than in any other asset class, making the housing policy a political third rail many lawmakers will not approach.
From the tax deduction for mortgage interest payments to subsidised loans for first-time buyers, the federal government is deeply involved in supporting home ownership.
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