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In our housing finance system, everyone is in favor of the wrong thing

2 9 0

“We make plans; God laughs,” says a wise Yiddish proverb. And when we make plans to reform the U.S. housing finance system, God laughs hysterically.

Or so one supposes, given the history of efforts to overhaul the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, a.k.a. Fannie Mae and Freddie Mac, since the federal government seized the two giant mortgage enterprises during the nationwide housing crash in September 2008.

The entities’ de facto nationalization, and the ensuing $190 billion bailout, revealed basic design flaws; yet for almost a decade, Congress and the executive branch have been unable to legislate a permanent replacement.

The most recent symptom of this failure is the Trump administration’s blueprint, unveiled last week, which would basically keep Fannie and Freddie in business, with some modifications.

Why the impasse? The problem is the U.S. homebuyer’s attachment to the 30-year, fixed-rate mortgage. Over generations, Americans have been trained — by bankers, developers, real estate agents, affordable housing advocates and politicians — to treat this particular loan instrument as some sort of naturally occurring financial phenomenon, the benefits of which they are entitled to enjoy.

The truth is that the United States is the only major industrial country where such a loan dominates the market, due to the heavy hand of government.

Left to their own devices, lenders are........

© Washington Post