NCPA - National Center for Policy Analysis

Government Meddling In Home Mortgages More Now Than It Did In 2008

April 24, 2015

Prior to the 2008 financial crisis, the federal government spent decades instituting rules and regulations that ultimately dictated everything banks could do. Regulators even specified capital requirements that supposedly certified financial firms were safe.

On the eve of the crash, the federal government either insured or owned $6 trillion in home mortgages, with essentially zero capital in reserve in case anything went wrong. Nearly one decade later, The United States is in an even worse position.

Here is where things stand:

  • Today, financial institutions have even more rules; there is a new regulator dedicated to making sure consumers are protected from paying off their debts, and taxpayers are explicitly on the hook for just about every new mortgage in the United States.
  • Billions in taxpayer dollars have been used to prop up the Federal Housing Administration (FHA), an agency that now insures three times the amount of mortgages it did prior to the crisis. In addition, the FHA remains in violation of the law that requires it to maintain an adequate capital reserve against future losses.
  • Taxpayers were forced to spend $200 billion to prop up Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) that provide guarantees on mortgage-backed securities (MBS). Today, the GSEs remain under government control with an agreement that requires their capital reserve to be taken to zero by 2018.

Yet the prospects of Congress fundamentally reforming this system remain as dim as ever, even after the election that gave Republicans control of both chambers of Congress.

Most politicians have clearly revealed their preference for the status quo, and very few are willing to debate the fundamental issue: Should the federal government be involved in housing finance?

Source: Norbert J. Michel, "Status Quo On Housing Finance Keeps Failed System In Place," Heritage Foundation, April 22, 2015. 

 

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