|By Dave Flessner, Chattanooga Times Free Press, Tenn.|
|McClatchy-Tribune Information Services|
The financial collapse of 2008 had many causes, but none more prominent than the role of the two mortgage behemoths, FNMA (colloquially known as "Fannie Mae") and FHLMC ("
Despite the desperate need for reform, the system remains essentially unchanged since the financial crisis, with nearly three quarters of all American single-family home loans dependent upon Uncle Sam. The Banking Committee vote last week was a good first step.
Although the government would still play a part in guaranteeing loans, the
Unfortunately, despite strong bipartisan support in committee, the
Political opponents cite two basic objections. First, they note that mortgage credit will become harder to obtain for borrowers who are not qualified. Readers with a decent recollection of the subprime crisis and ensuing near-death experience of the financial markets might understandably respond with an "Amen."
More curiously, the second objection is that reforming the system entails too much change to absorb at one time. Substantial reform, even to a system as badly broken as mortgage finance, must be done more incrementally they say. Sorry about that tornado, pal, but we can't replace the windows and the roof in the same year. Here's some duct tape.
Meanwhile, fierce opposition to sensible reform also comes from a group of investors, including a number of hedge funds that gambled on the deeply discounted stocks of Fannie and Freddie. Their positions become worthless if the two mortgage giants are euthanized, but gain value if the taxpayers' interest is subordinated. Billions in profits or losses hang in the balance, and one may assume that these speculators are making their voices heard in
Free market advocates rightly prefer the alternative version of reform passed by the