What if we just forgot about the government guarantee and got the government out the business altogether? There's a repeated refrain that this would mean the end of the 30-year mortgage. This is, of course, not true.
There are plenty of 30-year mortgages in the jumbo market that consists of mortgages too large to be purchased by Fannie and Freddie. The lack of a government guarantee adds 0.25-0.50 percentage points to their cost. There is no reason to think that we would not see a similar story for conventional mortgages.
At higher costs, more people may opt for shorter-term or adjustable-rate mortgages, but so what? We don't need to set up a complex government guarantee system to encourage people to buy 30-year mortgages: the point is supposed to be to promote home-ownership.
That goal can be best served with Fannie and Freddie continuing as government companies. But if that looks too much like communism for the Washington folks, then let's just shut them down and leave it to market. We don't need to set up a Rube Goldberg device just so the big banks can rip us off yet again.
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