Why should the government guarantee mortgages at all?

[dblack]

Why should the government guarantee mortgages at all?

During the depths of his Depression, FDR started the process of having the Federal Government buy mortgages from banks.

That was more than 70 years ago.

Before the Internet

Before the Personal Computer

Before FICO scores

Why do we need the Federal Government guaranteeing mortgage in the first place?

Investors can obtain all the credit information they need on a borrower in order to price the paper.

Why should the government guarantee mortgages at all?

GSE'S WORKED FOR 70 YEARS TILL DUBYA


U.S. policymakers often treat market competition as a panacea.

However, in the case of mortgage securitization, policymakers’ faith in competition is misplaced. Competitive mortgage securitization has been tried three times in U.S. history - during the 1880s, the 1920s, and the 2000s - and every time it has failed.


Most recently, competition between mortgage securitizers led to a race to the bottom on mortgage underwriting standards that ended in the late 2000s financial crisis.


This article provides original evidence that when competition was less intense and securitizers had more market power, securitizers acted to monitor mortgage originators and to maintain prudent underwriting. However, securitizers’ ability to monitor originators and maintain high standards was undermined as competition shifted market power away from securitizers and toward originators


Although standards declined across the market, the largest and most powerful of the mortgage securitizers, the Government Sponsored Enterprises (“GSEs”), remained more successful than other mortgage securitizers at maintaining prudent underwriting.



Competition and Crisis in Mortgage Securitization by Michael Simkovic :: SSRN



The boom and bust was global. Proponents of the Big Lie ignore the worldwide nature of the housing boom and bust.



Private lenders not subject to congressional regulations collapsed lending standards

Examining the big lie: How the facts of the economic crisis stack up | The Big Picture

What? No charts or graphs?

 

[EdwardBaiamonte]

Why should the government guarantee mortgages at all?

They shouldn't. People should pay the loans they take out,

liberal lack the IQ to understand why the free market works so well. They can't in a million years understand why interference makes things worse rather than better.