Nearly seven years into federal conservatorship, Fannie Mae and Freddie Mac, quintessential institutions of cronyism, look to remain a permanent fixture of the housing finance system.
Earlier this year, the Federal Housing Finance Agency (FHFA), Fannie’s regulating agency, announced that the government-sponsored enterprise would be relocating to its new and modern location in the next couple of years.
Given this planned location shift and other structural changes outlined by the FHFA for these two entities, it appears that Fannie and Freddie are being positioned for the long haul.
It would be instructive for policy leaders to keep in mind that they are continuing a legacy at institutions that have repeatedly undermined the stability of U.S. housing finance.
In fact, since the federal government started to get heavily involved in the housing finance system in the 1960s, there has been an explosion of mortgage debt and repeated housing bubbles, all of which have destabilized homeowners and cost taxpayers along the way.
Despite all of the government intervention, particularly the expanded involvement of Fannie and Freddie since the most recent collapse, the housing market recovery at the national level has been lopsided, and many indicators suggest continued weakness.
The national homeownership rate is at the lowest level since 1967 despite all of the attempts by the federal government to increase it.
The federal government has repeatedly tried to use different levers to boost homeownership in the U.S., whether through Fannie and Freddie, the Federal Home Loan Bank System, the Federal Housing Administration, the Veterans Administration or the USDA/RHS agency, to name a few.
Also, the first-time home purchase market remains weak. Millennials, a primary group of potential first-time home buyers, are beginning to get their feet planted on their own, yet most are making a normal transition to the rental market before homeownership.
There is nothing “bad” about this trend and certainly nothing that necessitates any more government involvement in housing decisions.
Most individuals in the 20- to 35-year-old range, whom many label as “constrained” and “pushed out of the single-family” homeownership market, may very likely be better off with the flexibility that renting affords to relocate to productive job opportunities without the debt overhang or other overhead that comes with the purchase of home.
And importantly, housing at its core is a local issue. Some regional housing markets continue to be severely constrained due to general economic and labor market conditions.
Government housing policies that attempt to keep people in unsustainable home/mortgage situations may hold households back from moving to different regions with better employment opportunities.
Homeownership by its nature locks people into their communities, and certain academic research suggests that it may indeed have some negative effect on labor market resiliency.
Moreover, while increasing home prices may benefit current homeowners with higher levels of equity, it constrains market entry for new homeowners.
In certain markets, house prices are now higher than the peak prices during the last housing bubble period, making homeownership more costly than renting.
All told, the government certainly cannot truly dictate “sustainable” and “affordable” financing mechanisms in the housing finance system.
The determination of such factors in financial decisions is best left to individuals, based on their current and projected individual financial needs and goals.
Government subsidies that bias individuals toward certain products and market segments only create tenuous and unsustainable market conditions over time.