Edward J Pinto at AEI writes that we need to be careful so we don’t began planting the seeds for the next housing bust…(AEI)
Before we discuss the future it is important we have a talk about the past.
- In 1968, HUD developed a 10-year housing program to eliminate all substandard housing. This created the Housing and Urban Development Act which turned into a disaster in just the early 1970s. Which left “Fannie’s investment in these loans had suffered huge interest rate risk losses that left it effectively insolvent.”
- In 1992, “the government forced Fannie and Freddie to reduce their credit standards so as to acquire trillions in risky loans under the rubric of affordable housing.” This, of course, was the catalyst for the 2008 housing crash.
Why this matters. In July, The Supreme Court correctly ruled that the head of FHFA could be removed from office at any time by the President. This puts tremendous power into the hands of the executive branch to control the mortgage markets.
Why this could be a problem. It is almost certain that the government will use its new control over the GSEs to weaken the current credit standards in the name of housing affordability.
Pinto lays out the four things the government must do to avoid another crisis…