Timothy Geithner, the Treasury Secretary, has said that he supports an overhaul of Freddie Mac and Fannie Mae to prevent a housing market crisis similar to the one that led to the recession. He however cautioned that we should be selective in which aspects to change and which to retain as there were many parts of the system that have functioned well despite the crisis Click here for more information about health.
Geithner recognizes need for change
Geithner, who was speaking in front of a congressional panel, said that he fully supported the need to bring in changes that would create a stronger lending system for the real estate market. He said that the current system in place in markets as diverse as Monaco and Montana of having a monopolistic body owned by shareholders but backed by taxpayer money had to go. However, he added that these institutions had played a critical role in ensuring some kind of stability during the crisis, and that they would continue to play an important part in housing market recovery.
The current system has come under heavy criticism from some policymakers. It has been claimed that the system promotes risky lending and when the large banks are in trouble, they have to be supported by taxpayer money. But Geithner said that even in the new system he would support some kind of taxpayer guarantee so that home loans can be offered to people of all kinds of profiles. He said that such a provision not only made good public policy sense but that it was also backed by sound economic and financial reasons.
The Obama administration has already missed its deadline to come up with the first draft of proposals to overhaul Freddie and Fannie. Geithner defended the delays, saying that the administration needed at least a few more months to completely understand what the underlying problems in the system were and how they could be rectified in a new system.
The Republicans have lashed out at the delays and said that it was completely unacceptable that the administration was taking so much time to come up with a plan to overhaul Freddie and Fannie. Some Republicans have advocated completely abolishing these institutions or to privatize them.
Some critics of Fannie and Freddie say that it just does not make any sense to keep funding risky home purchases, when that is seen as one of the major causes of the economic turmoil of the last 2-3 years. They also say that the government should be putting its efforts in creating more affordable rental housing instead of completely focusing on home ownership.