Both Republicans and the Obama administration agree, surprisingly enough, that the government should back off a little from the housing market, according to a Washington Post articleby Zachary Goldfarb.
But executing the plan is easier said than done.
In the past three months, government aid to the housing market has expanded, with September’s “Operation Twist,” October’s refinancing for underwater borrowers, and November’s boosted FHA loan limits. Why has the administration continued to get involved in when it wants to pull back?
Officials are concerned that, since the housing market and the economy are both weak, withdrawal of government support “could make it more difficult for people to buy homes, reducing demand and sending housing prices even lower,” Goldfarb reported.
“It’s difficult to have any significant pullback without potentially damaging the U.S. economy,” said David Stevens, Obama’s former FHA commissioner and current president of the Mortgage Bankers Association.
And the stats support Stevens claim – government-sponsored mortgage giants Fannie Mae, Freddie Mac and the FHA fund or insure 90 percent of new loans, according to Goldfarb’s article, while private-sector loans play a smaller and smaller role in the current housing market.
“It’s very easy to pay lip service to the need to reduce the government footprint in the housing market,” said Guy Cecala, publisher of Inside Mortgage Finance. “But can you do it in a depressed housing market like we’re in now?”
Goldfarb frames the issue within a larger debate: should there be a federal role in housing at all?
While many Republicans say no, the Obama administration maintains that government involvement in lending, particularly offering loan insurance, is a sensible move.
Goldfarb concludes, “Such a role would likely keep the nation’s housing markets operating as they generally have for the past few decades, with the 30-year fixed-rate mortgage being the norm.”