Mortgage Market Bound by Major US Rule...

With the pendulum now swinging to the other extreme from the mortgage market of the go-go years of the U.S. housing boom, the federal government remains the only one lender of consequence. While the government’s seizure a year ago of the two largest mortgage finance companies in the world — Fannie Mae and Freddie Mac — made it possible for many borrowers to keep getting loans and helped protect the housing market from further damage, nearly 90% of all new home loans are now being funded or guaranteed by taxpayers as a result, and that has far-reaching consequences for prospective home buyers and taxpayers. The government has the power to decide who is qualified for a loan and who is not, and that is freezing borrowers both poor and rich out of the market. Nearly one-third of those who obtained home loans during the boom years of 2005 and 2006 couldn’t get one today, according to mortgage industry analysts. Many of these borrowers were never really able to afford their homes and should not have gotten loans. But many others could, and borrowers like them are now running into tougher governmental standards. “Absent government intervention, there would be no lending,” said Nicholas P. Retsinas, director of Harvard University’s Joint Center for Housing Studies. Government officials generally agree that it would be better for private lenders to resume their traditional role as major providers of finance for home loans. But policymakers now face some tough choices. They must decide how to reduce support for the mortgage market without letting it collapse. And they must decide what kind of support the government should provide in the long run. (

Washington Post (9/7/09); Zachary A. Goldfarb and Dina ElBoghdady




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