Hope Vs. Experience

Arnold Kling

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I think that is what is on display at the Room for Debate discussion of housing finance reform. The hopers say that we need a housing policy, ignoring the experience. I say otherwise. Concerning Freddie Mac and Fannie Mae, I am the only one to argue for the following:

They should be forbidden from participating in the market for loans with low down payments. They also should be forbidden from participating in any loan other than for purchase of a home by people intending to live there. That means no loans for investment properties, no home equity loans, no second mortgages. I also think that it would be best to limit Freddie and Fannie to 30-year and 15-year fixed-rate products. All of these limitations should be put in place ASAP.

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Various writes:

Exactly! I think many people agree with your proposal. But, the problem here is political, not theoretical. Too many constituencies benefit from Fannie/Freddie. Hopefully, we will have sufficient political leadership (or more likely, another crisis) to affect sensible change.

Related subject Arnold, you probably have a selection bias thing going on here with the comments. I'm guessing a lot of the blog's readers implicitly agree with your proposal....and thus minimal comments.

Posted March 8, 2011 5:19 PM

cassander writes:

The GSEs used to have many (all?) of those restrictions, many of them were removed. Why should we assume that they won't be again? There is no solution for the GSEs other than death.

Posted March 8, 2011 8:30 PM

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