Calling the “urgent need for fundamental reform of our system of housing finance the great unfinished business of post-financial crisis reform,” Federal Reserve Governor Jerome Powell said on Thursday that the U.S. housing finance system continues to put taxpayers at risk in a market dominated by government-backed agencies.
Addressing members of the American Enterprise Institute, Powell stated that even though housing prices appear to have recovered since the crisis of Fannie Mae and Freddie Mac nearly a decade ago, further reforms are needed to deal with what has since become a seemingly “comfortable” but “unsustainable” situation.
“We’re almost at a now-or-never moment here,” Powell warned, adding that unless Congress acts immediately, “There is a serious risk, if not a likelihood, that this state of affairs may persist indefinitely, leaving our housing finance system in a semi-permanent limbo.”
Powell explained that housing finance is often at the center of financial crises, as was the case in 2008. “Memories of the crisis are fading,” Powell pointed out. He notes that since they were bailed out in 2008, Fannie and Freddie have remained in government hands. And they, along with other government agencies, back the vast majority of American’s mortgages.
During the past eight years, Congress has failed to replace Fannie and Freddie, mostly because they can’t agree on the government’s role in backing mortgages and subsidizing houses.
However, some legislators have recently discussed housing finance reform, which could lead to new legislation in the coming year.
Powell cautioned that “the current structure does expose the taxpayer and does carry substantial systemic risk over time” and offered advice to legislators to put forth explicit rules for mortgage-backed securities in the future and strive to pursue a bipartisan agreement.
If you would like to receive Breaking News text alerts on a smartphone or tablet, download the DML APP which is completely FREE and easy to use. Go to the Google Play Store or the IOS App Store and search for DML APP. Be sure to keep the app’s notifications setting on. Another way to receive alerts is to text to 40404 the following message: follow @realdennislynch (be sure to put a space between the word follow and the @ symbol).
To see more stories like this, sign up below for Dennis Michael Lynch’s email newsletter.
Sign up to get breaking news alerts from Dennis Michael Lynch.
REPORT: US economy nears full employment