Everywhere in the World, Governments Heavily Regulate the Home Mortgage Business

Yesterday I wrote about problems with the mortgage finance market, which are mostly due to the fact that private lenders aren’t interested in funding 30-year fixed-rate mortgages on their own. There’s just too much risk. This means that if we want the mortgage market to revive, Fannie Mae and Freddie Mac need to start guaranteeing these mortgages again in the same volumes they used to.

One obvious response to this is that the 30-year fixed mortgage wasn’t handed down on stone tablets from Mt. Sinai. It was an invention of the New Deal. Other countries get by just fine without them, and so can we. We should just get the government out of the mortgage market entirely and let banks make whatever kinds of loans they want.

We could do that. But it’s well to keep in mind that although other countries might not have outfits like Fannie Mae and Freddie Mac, they do have plenty of government regulation of the mortgage loan market. If you’re curious about how mortgages work outside the US, Michael Hiltzik provides a useful rundown of Canada here. Other countries work differently, but the principle is the same: there’s always supervision of some kind. Getting rid of Fannie and Freddie is a defensible option, but that doesn’t mean you’re getting rid of government regulation. You’ll just end up with different government regulation.