Investors Unite, the group formed campaign on behalf of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) shareholders, has been consistent opponent of the Crapo-Johnson proposal for Fannie Mae and Freddie Mac reform and the Corker-Warner bill that it was modeled after, but just because the Senate bill has lost momentum doesn’t mean they’ve met their goals. At a recent Investors Unite conference Joshua Rosner, the co-author of bestseller Reckless Endangerment, proposed a new way to help meet policy and social goals for the GSEs without having to create a new government agency: tax-free mortgage savings accounts.
Fannie and Freddie failed because politics interfered with good policy
“Complexity is the enemy of functioning markets, and it’s the enemy of transparency,” said Rosner, explaining why he opposed the creation of a new platform like Crapo-Johnson’s Federal Mortgage Insurance Corp (FMIC).
Rosner argues that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) worked for generations as public utilities that guaranteed liquidity in the secondary mortgage market and can work again with a few modifications. A combination of loosening of underwriting standards, lowering guarantee fees to capture market share, and other policies that conflicted with its role as a utility starting in the mid-90s set the stage for the housing crisis, but those policies can be (and mostly have been) reversed.
The problem is that underwriting standards can always be weakened again (watch the op-eds and the cries for sub-prime lending to increase home ownership have already started reappearing), so Rosner has a novel suggestion that he thinks can satisfy all concerned.
A plan to appeal to all sides
A tax-free savings program for first-time home buyers would give families a way to build capital until they are ready to make a down payment. We already have similar programs for retirement savings, another life event that requires long-term planning, so tax-free mortgage accounts aren’t much of a stretch policy-wise, and restricting it to first-time homeowners would limit its scope and keep the cost down. People who want to expand home ownership, protect taxpayers from another bailout, and re-privatize Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) all have something to be happy about.
Rosner also understands that the housing market isn’t just one more sector of the economy, it’s the most effective way for the middle class the create wealth. He mentions the possibility of parents who never own a home to use their tax-free mortgage accounts to assist their children in buying a home so that their savings can be used to build wealth in the next generation. He doesn’t go into details, but it’s rare to hear an idea that appeals to both the anti-tax right and the pro-social policy left, and it seems like it’s worth further examination.