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News Link • Housing

Fannie & Freddie Restructuring Options: The Demise of 30-Year Mortgages

The correct option is to get rid of Fannie, Freddie, the FHA and HUD. The government should not provide any backstop or any guarantees at any time. Unfortunately that option was not on the table. Some are concerned that private lending may dry up. If it did, so what? The government has no business promoting housing or taking on risks best suited for private markets. Here's the deal: If lenders knew there was no government guarantees, they would not make as many stupid loans. If they don't make stupid loans, there is far less risk that lending freezes up in the first place. Moreover, if somehow the lenders do go broke as a consequence of making poor loans, bondholders and shareholders will pay the price, not taxpayers. Pray tell, what is wrong with that?

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