Swagel on Mortgage Finance

Phillip Swagel writes,

The longer Fannie and Freddie stay in government hands, the more likely they will become permanent wards of the state. This would be the worst of possibilities, yet it becomes more likely as conservatives push for a supposedly private housing financing system that has no hope of enactment. The government will always be part of the housing market; let's make sure we keep its role as small and contained as possible.

I have to say that I disagree with just about everything in his essay. First, I do not see why government needs to subsidize mortgages at all. If what you want is a more stable housing market, then let people put in larger down payments. If what you want is for poor people to be able to afford good housing, then give them housing vouchers.

And if you insist on having government-subsidized mortgages, then for gosh sakes, do not set up a whole new system of 5 entities to be subsidized. If you think that inexperienced institutions with inexperienced regulators are an improvement over Freddie Mac and Fannie Mae, then you are fundamentally over-confident about policy-wonk expertise.

For a more extended take on this argument, see my Mercatus paper.

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