Friday, September 19, 2008

Guest Blogger John McIlwain: What a Difference a Week Makes

John McIlwain

What a difference a week makes. Last week all the talk was about the Fed’s takeover of Fannie Mae and Freddie Mac; now that’s old news and the world has virtually forgotten the nationalization of the U.S. residential housing markets after 70 years of steady privatization.

The politics of U.S. housing finance are fierce and complex with trillions of dollars at stake, as well as, by the way, the stability of the U.S. housing markets and U.S. economy. Unfortunately, what the feds should do with Fannie and Freddie has been swept into a larger crisis by ongoing federal takeovers; it will be even harder now to sort out the future structure of housing finance and distinguish it from the rest of the U.S. financial crisis.

Keep a couple of things in mind. When the dust settles and the Fannie/Freddie conservatorship ends, there will be a continuing federal role in single and multifamily finance; larger, in fact, than it was before the conservatorship. Only the feds can help the housing markets recover and stay healthy and only they can effectively oversee the making and selling of mortgages and so avoid another debacle.

Keep in mind also that a federal role will be needed to enable households of all income levels attain homes, whether rental or ownership. Theoretically, the drop in housing prices has made housing more affordable, but credit is so tight that home ownership is still unattainable for many. Nor should everyone own a home. Making rental housing affordable for all income levels is something only the federal government can do.

Meanwhile, until the conservatorship ends, Congress must oversee the Federal Housing Finance Authority closely. This small agency is now both regulator and owner of a $5.3 trillion dollar business; much damage can be done, intentionally or not, especially if the goal of the conservatorship is perceived to be winding down the two companies in order to privatize them, as some would have it.

John K. McIlwain is chairman of NHC's research affiliate the Center for Housing Policy, and a senior resident fellow at the Urban Land Institute where he holds the ULI/J. Ronald Terwilliger Chair for Housing. Prior to joining ULI, McIlwain served as senior managing director of the American Communities Fund for Fannie Mae, and was president and CEO of the Fannie Mae Foundation.

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