Comment Detail

Comment

The Federal Housing Finance Agency has failed to learn from history.

In a prior push to create more affordable housing, Fannie and Freddie collapsed the U.S. housing market. By June 2008, the twin mortgage giants had acquired a reported 16.5 million subprime or otherwise risky mortgages. It resulted an enormous housing bubble. The financial crisis that ensued was the worst since the Great Depression.

Under a new administration, the GSEs are again being used as they were leading up to the 2007-2008 financial crisis – to promote affordable housing. The GSEs' sausage fingers are now fumbling with market mechanisms in a housing segment that doesn’t need the assistance – homes valued up to $1 million.

The stage is again being set for a conflagration touched off by serial, cash-out refinancings, consumer debt traps, reductions in homeowner equity and ruinous foreclosures. This was never part of Freddie and Fannie’s charter. In fact, just the opposite.

Congress and the Obama administration blamed the financial crisis on insufficient regulation. As a result, Fannie and Freddie were never privatized or eliminated. The government-sponsored entities were never held to account for their role in the crisis. As a result, the needed reforms were never instituted. They now need to be.