U.S. Eyes Bigger Private Sector Role in Housing Finance
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The U.S. government Friday submitted a report to Congress on reforms of the housing finance market, which will give the private sector a bigger say on the multi-trillion-dollar market.
The reforms aim to reduce the government's footprint in the nation's housing finance market, U.S. Treasury Secretary Timothy Geithner said Friday when addressing a seminar at the Washington-based Brookings Institution.
On the urgency of this long-awaited reform, he held that "we are going to start the process now." But he also cautioned that this was "a complicated issue," adding that "we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market."
His stance was echoed by U.S. Housing and Urban Development Secretary Shaun Donovan. Friday's report provided a strong plan to fix fundamental flaws in the U.S. mortgage market, but necessary steps should continue to be taken to ensure that Americans "have access to quality housing they can afford," he commented.
Fannie Mae and Freddie Mac, the two housing finance giants sponsored by the U.S. government, played a major role in the run-up to the severe financial crisis. The U.S. government stepped in to take over Fannie and Freddie in September 2008, which has cost U.S. taxpayers multi-billion dollars and drawn criticism from various sectors.
The administration's reform roadmap presented three different options in an effort to shrink the government's presence in the housing finance system and give the private capital the dominant role on the home mortgage market in the long-run.
The administration recommends ending unfair capital advantages previously enjoyed by Fannie and Freddie, by requiring them to price their guarantees as though they were held to the same capital standards as private banks or financial institutions.
The report suggests gradually increasing down payments from borrowers, reducing Fannie and Freddie's investment portfolio at an annual rate of no less than 10 percent, and helping consumers avoid unfair mortgage practices.
The report also specifies plans on fixing fundamental flaws in the nation's mortgage market and increasing transparency for investors among others.
Economists believed that it was a demanding job for the government to roll out the mortgage market reform at this time, as the nation's property market had not been on firm footing after several years of price decline while the economic recovery just began to regain strength.
Stabilization of the U.S. home prices was important not only to the housing market, but to the "economic recovery as a whole," former U.S. Federal Reserve chairman Alan Greenspan said while addressing the same seminar.
Even at current depressed levels of new single-family construction, the property inventory overhang in the United States cannot be absorbed quickly, the former central bank chief contended.
The U.S. housing market "remains fragile and will take years to fully recover." An elevated unemployment rate, lower household wealth and higher credit standards are constraining demand for housing, notes the report.
Analysts also worry that mortgage costs in the United States might rise without cheap lending supplied by the government-sponsored companies, a new drag on the slackening property market.
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Jessie Stone
Submitted
2011-02-15 17:47:54 |
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