Finance Column » Your Money This Week » Quit clowning on mortgage fix

Quit clowning on mortgage fix

By Gregg Fields · Bankrate.com
Monday, February 21, 2011
Posted 10 am ET

If government studies had background music, the recent report on mortgage reform would have us all humming Stephen Sondheim's "Send in the Clowns.''

Officially called "Reforming America's Housing Finance Market," it might casually be dubbed "The Treatise That Kicked the Hornet's Nest." The report's main point: Washington must wind down its involvement in mortgage giants Freddie Mac and Fannie Mae. How? Cue the hornets.

No question, Fannie and Freddie are broken. They're in hock to the tune of $130 billion or so to the Treasury, which bailed them out for backing lemon loans that, inexplicably, no one thought would sour.

Yes, the U.S. mortgage system needs a new direction. Right now the government subsidizes nearly 9 out of 10 American mortgages. In baseball terms, that's way too many backstops behind home.

But if the report points toward a desired destination, it's dodgy on directions. It's like being told you've won a trip to Honolulu -- by car.

It's not that the Feds lack ideas. Cafeteria-style, the report serves up so many suggestions that one suspects the authors were required to wear hairnets. One suggestion is for Fannie and Freddie to guarantee smaller mortgages. Given drooping home values, there should certainly be plenty of those available for years to come.

Another plan would require loans have down payments of up to 10 percent. Not exactly tough love.

Finally, it calls for Fannie and Freddie to lighten their portfolios, to let the private sector step in. But Washington also bails out private banks when times get tough. So the batters would change, but the backstop remains the same.

In true regulatory style, Treasury Secretary Timothy Geithner said reform may take many years. (Translation: I'm outta here.)

For all the caterwauling, the betting was that mortgage reform will ultimately fall victim to Washington's never-ending political circus.

Send in the clowns? Don't bother, they're here.

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.