Friday, February 11, 2011

Hoping Obama Housing Plan is For Real

This morning the Obama administration released their plan for revamping the government’s role in the nation’s housing market and after having just read the press release I’d have to say that I’m very enthusiastic for the plans goals.

While the “devil is in the details”, the administration has clearly done a thorough post-mortem on Fannie, Freddie and the whole “government-sponosred” housing racket and appears set to significantly dismantle and restructure the system with a priority on returning most functioning to the private market.

Particularly inspiring goals, especially in light of their political consequences, are the initiatives to eliminate any pricing advantages that the GSEs have previously enjoyed thus paving the way for greater private market competition and the inevitable wind-down of Fannie and Freddie, allowing the “conforming” loan limits to adjust back down in October 2011, establishing a target of 10% minimum down payment for government insured mortgages, elevating government directed rental initiatives to an equivalent status as home purchase programs and more directly targeting stable creditworthy households in need, and increasing FHA premiums and returning it to its original role as a premium-based balanced insurance fund.

It’s important to recognize that currently 90% of all home loans are guaranteed by the government (Fannie, Freddie, FHA etc.) and it appears that the administration clearly views this (as any rational observer would) as a condition that needs to be reversed through reforms of government initiatives and regulations affecting private financial institutions.

One likely outcome from the implementation of this plan is that access to housing (over a period of years) will likely become generally more constrained as the faux-government sponsored market created over the last few decades lifts to reveal costs more in-line with real market conditions and born primarily by private institutions and individuals.

While I have yet to fully digest the entire report, so far so good…