Just how much should Uncle Sam do to help Americans buy their own homes?
For 70 years — and for the last 15 in particular — the answer has been: Whatever it takes.
Now, policymakers are pausing to reconsider. In the next few months, they’ll weigh whether there can be too much of a good thing when it comes to helping families finance the American Dream.
The rethink could mean a shake-up for a mortgage market addicted to government subsidies.
“This process of figuring out the government’s role is going to involve some hard choices,” says Alyssa Katz, author of Our Lot: How Real Estate Came to Own Us. “The moment you start changing the nature of what is guaranteed by the government, what is subsidized, you start to change the alignment of winners and losers. … We took for granted that anyone could get a mortgage.”
Using guarantees and tax breaks, the government pushed homeownership past 69% in 2004. Then it all came crashing down.
Housing prices started crumbling in 2007, panicking financial markets, forcing the government to seize mortgage giants Fannie Mae and Freddie Mac, and pushing the economy into the worst recession since the 1930s. Homeownership has fallen below 67%.
Now, Washington is preparing to rebuild the national mortgage market atop the ruins of Fannie and Freddie. The proposal, due early next year from the Obama administration, could make it harder to buy a home by reducing available credit or requiring bigger down payments. Low-income renters might get more government help.