Tuesday, August 17, 2010

U.S. Role as Mortgage Backer Confirmed; I'm Not Surprised but I am Disappointed

The NY Times reports today that Geithner said that the government would continue to guarantee mortgage loans.  This was at the opening of a conference on housing.  I'm not at all surprised by this but I'm at a loss to point to any legitimate state interest in promoting home ownership.  The few areas of intervention necessary in this market could probably be achieved by some updated regulations.  Home ownership being such a big deal to so many it's probably inevitable that the state will do something but personally I don't see any firm evidence of market failures that are fixed by government guarantees or by promoting ownership through other policies.  Not that market failures don't exist in the mortgage market that require regulation but none of these are fixed by making mortgages easier to get.

[Update: An updated article has been posted to the NY Times that includes the rest of the conference.  This worries me:

Broader guarantees create greater risks for taxpayers, but also lower interest rates, bringing ownership within reach for more families.
Shaun Donovan, the housing secretary and a host of the conference with Mr. Geithner, said that the administration remained committed to “broad access to homeownership, including options for those families who have historically been shut out of these markets.”

I think it's very hard to not conclude after the recent crisis that we already pushed homeownership farther than was realistic.  Trying to expand it past where it is now is the opposite of the direction I'd like to see us going.  Some of the others topics seem sensible, such as trying to reduce government exposure to systemic risk factors but as long as increasing homeownership rates is an explicit policy goal there's a problem.  Sooner or later we need to say we've done what we can and pat ourselves on the back for a job well done.  Having a goal of always increasing ownership rates and opening new markets is not a sensible policy goal.]

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