As their first act of contrition in atoning for their decades-long indulgence of Fannie Mae and Freddie Mac, the Democrats yesterday unveiled three proposals to increase private sector participation in the housing market, a market, which is now 90%, owned or insured by the federal government. There’s a lot to say about these proposals, but let me offer my top two points.
First, none of the proposals truly “privatizes” the mortgage market. Taxpayers are still on the hook for government-insured loans to borrowers who otherwise can’t meet the private industry’s credit standards. In other words, the taxpayers still will be paying for loans made to people who likely won’t repay them.
Second, even with these continuing government subsidies, all the proposals do result in some degree of higher credit standards and, hence, fewer loans to less creditworthy borrowers. While that makes perfect sense to you and me, left wing radicals fervently object. In fact, they already have filed fair lending complaints against lenders who, having recognized the need for tighter lending standards, had imposed criteria for government-insured loans that exceeded the government’s minimal credit requirements. Yeah, that’s right - liberals are suing banks for making responsible lending decisions immediately on the heels of an economic collapse caused by standards that were too lax.
Bottom line: these reform proposals are a step toward rational mortgage lending, but they are only one step in a very long uphill journey.