While he steadfastly maintains that administration failure HAMP (Home Affordable Modification Program) is critical to homeowners everywhere, U.S. Treasury Secretary Timothy Geithner did admit yesterday in a hearing before the House Committee on Financial Services that the government made “avoidable” mistakes that probably led, in part, to the housing market crash. Think the treasury secretary is moving away from the idea of massive government control over the housing market because he is acknowledging the role of government in the housing crisis? Think again. Geithner blames the government for its lack of involvement. “We allowed an enormous part of the mortgage market to shift to where there was little regulation and oversight,” he explained.
Basically, Geithner’s explanation for the housing crisis is that private industry was allowed too much leeway in making loans. This is arguably true, but leaves out the massive incentives provided by the government to lenders to encourage the “securitization chain that lacked transparency and accountability” that Geithner cites as a result of the lack of oversight. In the same testimony, though, he pointed out that winding down government-controlled Fannie Mae and Freddie Mac will “fundamentally transform the role of government in the housing market,” which is, indeed, likely. However, he emphasized that there is still a role for the government in housing reform, since “these steps alone will not give rise to a housing finance market that meets the needs of families and communities.” He went on to suggest reforms that “restore confidence in the mortgage market among borrowers, lenders and investors” and that would lead to a different concept of the “American Dream.” “Our goal is not for every American to become a homeowner,” he said.
On the whole, this sounds like a positive perspective from the administration. However, it also sounds like Geithner is leaving plenty of room for an enormous government role in the “reform” of the system even as he explains plans for removing Fannie and Freddie. Do you think that this administration can effectively reform the housing market? Does it need reform, or just a good cleaning out?
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