Instead of deregulation, Trump unveils his latest big-government housing program.
If you thought Trump would deregulate Fannie Mae and Freddie Mac you thought wrong. Instead of deregulating, he replicates the old rules and prepares another bust.
Please consider The Coming Trump Housing Crisis.
The Trump administration has finally turned its attention to housing policy. Unfortunately, the president's Memorandum on Housing Finance Reform, issued last week, is a major disappointment. It will keep taxpayers on the hook for more than $7 trillion in mortgage debt. And it is likely to induce another housing-market bust, for which President Trump will take the blame.
The memo directs the Treasury to produce a government housing-finance system that roughly replicates what existed before 2008: government backing for the obligations of the government-sponsored enterprises Fannie Mae and Freddie Mac , and affordable-housing mandates requiring the GSEs to encourage and engage in risky mortgage lending.
An administration that believes in deregulation should do better. The Trump administration could have used its control over the Federal Housing Finance Agency—the regulator and conservator of Fannie Mae and Freddie Mac—to shrink their footprint dramatically over five to 10 years. This would be done through administrative action, reducing the size and types of the mortgages that GSEs could buy and opening larger portions of the housing-finance market to the private sector, which offers 30-year fixed-rate loans at rates competitive with the GSEs'.
Since 1992, this government intervention has been guided by the misconception that low down payments and high debt-to-income ratios will help low- and middle-income families buy homes. The resulting policies produced a highly volatile U.S. housing market, subject to enormous booms and busts. Its culmination was the 2008 financial crisis, in which a massive housing-price boom—driven by the credit leverage associated with low down payments—led to millions of mortgage defaults when housing prices regressed to the long-term mean.