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It has been years since bad lending and bad mortgages conspired with Wall Street stupidity to crash the American financial system. But amazingly, no fix of the mortgage financing system has been forthcoming, or even proposed.
Now President Obama is taking on the mortgage-finance morass. The problems with the system and the ways to fix it have little to do with ideology or partisanship. The President knows this, and has reached out to Republicans who also know it. There is a chance for reform that would make our economic system more rational and safer.
Mr. Obama wants gradually to shut down Fannie Mae and Freddie Mac, the two government lending programs. He says taxpayers should never again be left “holding the bag” for their costs. More fundamentally, he says most mortgage lending should come from private lenders. That’s an old-school GOP position.
The President also wants the federal government to insure private loans and regulate home loans. These are classically Democratic positions.
Competing versions of reform legislation are before Congress. One would simply abolish Fannie Mae and Freddie Mac. The other would do what the President wants to do — dismantle them and replace them with regulation that includes both carrots and sticks.
Liberals seek reassurance that a mortgage finance system led by the private sector would still ensure broad-based home ownership — the foundation of the American dream — and continued access to traditional, popular 30-year mortgages that stretch out payments.
But such legislation would be a bad idea. Reform should get government out of home loans, not retain it as the man behind the curtain. The feds should regulate, but not try to control outcomes.
Home ownership is positive for many Americans, but not all. It is not a panacea, and government cannot manufacture a market and a result. Americans do not have a God-given right to home ownership. If there is not a profitable market for 30-year mortgages, it should not be manufactured.
At the same time, mortgages always will have to be insured and lenders always will need to be regulated. President Obama is right to try to move lending back to a marketplace that has rules, but is essentially private.
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