How to Get the Government Out of Mortgage Lending

Bloomberg View | December 20, 2016        One of the least discussed challenges of the incoming Trump administration may also be among the most economically consequential: what to do with Fannie Mae and Freddie Mac, the government-controlled entities that own or guarantee about half of all U.S. home mortgages.

Trump's pick for Treasury Secretary, Steven Mnuchin, has said he wants to put housing finance back into private hands. Sensible as the goal may be, the hard part will be getting there.

Fannie and Freddie illustrate how slippery the term "private" can be. The two operated as privately owned corporations for decades, albeit with a congressional mandate to promote access to mortgage credit. They generated ample profits for shareholders and gained a dominant position thanks in large part to the expectation that the government would rescue them in an emergency. That perception proved correct in 2008, and they have been wards of the state ever since.

The failure of Fannie and Freddie has drawn the government far deeper into U.S. housing finance than it ever intended, at a time when even its pre-crisis involvement appears excessive. Subsidized lending may have boosted home ownership, but it also contributed to a consumer-debt burden that has hobbled the recovery and rendered the economy more prone to crisis. Most other advanced-nation governments play a much smaller role, with little apparent effect on home ownership.  Read more here.

 

Foreclosure Fallout: 43 Percent of Americans Are Still Renting

NBC News | February 11, 2016    Although the start of the mortgage meltdown is nearly a decade in America's rearview mirror, its effects are still evident in the number of former homeowners who are treading water in the nation's rental market.

A new report by real estate site Trulia.com found that the number of renters across the United States grew by about five percentage points between 2006 and 2014, to just over 43 percent.

Within this cohort, though, some geographic and demographic groups suffered a more acute dropoff in homeownership levels. As aspiring presidential nominees travel to Las Vegas to woo Nevada voters in advance of that state's primary later this month, candidates will be facing a population in which fully half of households rent today, up from just under 40 percent a decade earlier, the highest increase among major U.S. metro areas.

While adults under 35 always have rented in substantially higher numbers than older age brackets, the leading edge of the millennial generation — those between the ages of 26 and 34 — bore the brunt of the mortgage market implosion, with the percentage of renters shooting up 11 percentage points to 67 percent.  Read more here.