White House Wants Government to Back out the Mortgage Market

Wow, who took Obama's brain and transplanted it with someone that has some common sense?

But rather than making a single recommendation, the administration offered Congress three scenarios and will let lawmakers shape the final policy.

The options are:

• No government role, except for existing agencies like the Federal Housing Administration.

• A government guarantee of private mortgages triggered only when the market is in trouble.

• Government insurance for a targeted range of mortgage investments that already are guaranteed by private insurers. The government guarantee would kick in only if those private companies couldn't pay.

The private sector will assume a greater role in housing finance under all of the options. The government currently owns or guarantees more than 90 percent of new mortgages.

They all sound like good enough proposals as long as they are done slowly and carefully. I'm sure big banks would love to get into the mortgage insurance market as long as the government is backing the instruments to some extent. The whole idea of a quasi-independent company owning 90% of mortgages was a bad one in the first place. We blew $150 billion trying to recover from this idea. I'm pretty sure banks will scrutinize things better if they would be on the hook for more losses if someone defaults on the home.

Well, this is the Obama we all know:

The housing finance system should guarantee access to affordable housing for Americans who can afford it, they said. To that end, any plan would increase support for rental housing, add safeguards for people in rural and underserved areas and preserve FHA loans for low- and moderate-income borrowers. 

I'm not sure how these things will be done unless the government encourages them somehow. I can see increasing the rental tax credit, or somehow subsidizing the loans to the rural and underserved areas. I'm sure banks would love to preserve FHA loans if the government is footing the bill to insure them. It is just the idea that some people who cannot afford these loans might still get them and the government will have to insure that move that makes me leery of it.