A new report by the CBO says Fannie and Freddie actually hampered the mortgage backed securities market’s recovery after the crisis. No kidding?
Is it still a surprise to anyone that government interference in the marketplace makes things worse, not better? It seems we still can’t learn this lesson, after a good century of evidence. As for the housing market, the five-year downturn saga might have been avoided if it weren’t for our favorite Distortion Twins, Fannie and Freddie. According to a new study by the Congressional Budget Office, as reported on HousingWire :
The private-label, mortgage-backed securities market would have rebounded faster from its near extinction during the financial crisis but was hindered by the growing reach of Fannie Mae and Freddie Mac, according to a new analysis from the Congressional Budget Office.
Considering these two government-backed behemoths were not only major causes (but not the only ones) of the housing meltdown in the first place, it’s really not a surprise that they hampered the credit market recovery – which might have opened lending faster and more broadly, leading to a faster recovery. More importantly, the taxpayer wouldn’t be on the hook for some $148 billion in bailouts (potentially rising over $200 billion when all is said and done).
Connect the dots with another recent news story: that private mortgage modifications have helped more than 5 times as many homeowners as “government” programs have, and we should have our answer to what it will take to get the housing market back on track. Not tax credits, or write-downs, or any other book-cooking tricks that government has been trying for the last three years. It’s time to let the market do what it does best. And time to learn the lesson that there’s no free lunch – or free housing.
Santa should definitely put coal in Fannie and Freddie’s stocking this year.