“We Have Always Been At War With the Private Mortgage Market”
A headline from CNBC: “Who Would Finance Mortgages Without Fannie, Freddie?”
I know, it’s crazy! I mean, without the government propping up home prices, they would probably fall until people could afford them without government assistance. And except for the US losing to another country in basketball in the Olympics, I really can’t think of anything worse than falling house prices.
In case my sarcasm is too thick for you, that headline annoys me because, until recently, we had a semblance of private financing for mortgages. I could understand someone today asking, “Who would pay for widows and orphans without Social Security?” So the CNBC headline is worse than that, though better than, “Who would make Detroit cars without the federal government?”
Incidentally, you will be pleased to know that CNBC did contact some people familiar with history. Apparently we have already tried the free-market in this country for mortgages, and it didn’t work:
But without the guarantees [from Fannie and Freddie], experts say, there would be no securitization, no capital from the rest of the world for long-term fixed rate mortgages and banks would have to hold on to them.
“We’ve been through another crisis, the S&L (Savings and Loan), where banks indeed held long-term mortgages on their books,” said Susan Wachter, professor of real estate and finance at the University of Pennsylvania’s Wharton School. “That’s a recipe for disaster.”
