Government Support and the Good Boom

A truly healthy housing market boom occurred between 1940 and 1960. Supported by Fannie Mae as a quiet, behind-the-scenes government corporation, the home ownership rate grew from 40 percent to 60 percent. The company provided liquidity for FHA mortgages and for U.S. Veterans Affairs’ zero-down payment mortgages for returning World War II soldiers, which helped fuel the growth of the American middle class.

The desire to obtain a private “castle” that was within one’s budget—however small that first home—motivated people to work hard. Overall, home ownership contributed to an economy that was booming and that helped make the country a superpower.

Final 2011 Home Sales Figures Released

Existing-home sales rose 1.7 percent last year to 4.26 million.

By contrast, the housing market boom of the past decade was artificial and unsustainable. Wall Street lenders went wild and Fannie Mae, along with its rival, Freddie Mac, chased market-bubble profits. Private profit with taxpayer loss is a business model that must never be permitted to return.

However, a very simple role in which the government provides backing of soundly underwritten loans is critical to the availability of 30-year fixed-rate mortgages. Long-term, fixed mortgage payments served our parents and grandparents very well. We want to ensure the 30-year mortgage is available for our children and grandchildlaren. It is the best ­inflation-fighting mechanism there is.

Despite knowing what worked and what didn’t, Washington today is busily toying with the idea of throwing the baby out with the bathwater. Trying to mandate a 20 percent down payment is wrong. Trying to curtail the mortgage interest deduction is wrong. And efforts to privatize government-backed mortgages by putting the market solely into the hands of too-big-to-fail Wall Street companies are wrong. These actions would shut out many people from the American dream of home ownership.