No Consensus on Future of Housing Finance

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No Consensus on Future of Housing Finance

Long after the housing collapse, there's still no clear road forward.

More than two years after the collapse of the housing market, are we any wiser? If we measure what we learned from the real- estate bust by the level of agreement at yesterday’s Treasury Department Conference on the Future of Housing Finance, we haven’t learned much. “Some suggest that, as a government, we have provided too much support for housing, while others suggest we provided too little,” said Treasury Secretary Tim Geithner. “It's safe to say there is not yet any clear consensus.”

Fannie Mae, a private entity supported by the government, was created during the Depression to help Americans get affordable mortgages. Successive administrations of both parties backed a national goal of making as many Americans as possible become homeowners. But after Fannie Mae and Freddie Mac faced collapse in 2008, leaving taxpayers holding the bag, many said that maybe more Americans should look at renting.

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The most radical perspective of the day came from Bill Gross, founder of the largest U.S. bond fund, Pimco. For him, the answer to what role the government should have in housing finance is simple: complete nationalization. He said that would mean all American mortgage financing would be done under one government roof. "The only way to bring housing back and to create liquid ... mortgage finance going forward would be to provide a government guarantee," Gross said yesterday at the summit.

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Unsurprisingly, Alex J. Pollock, of the conservative American Enterprise Institute, says that the government should have almost no involvement in financing mortgages, other than some subsidies for low-income people. “You can either be a private company or a government agency, but not both,” said Pollock. His reasoning is straight from the Bible: "He who stands a surety for the debts of another shall smart for it." Or, in other words, taxpayers shouldn’t be backing loans.

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