No. The current financial crisis partly stemmed from the fact that government policy was directed to encouraging lower income groups to buy homes and encouraging banks to lend money to them through the guarantees provided by Fannie Mae and Freddie Mac.
The creditworthiness of such loans became secondary to the policy of higher home ownership rates, and this led to the high default rates that we see now on sub-prime loans.
Likewise, the government should have no role in deciding how much mortgage lending to do, as it does not have the expertise to judge the creditworthiness of loans. What it can and should do is regulate mortgage lenders to ensure that they adhere to minimum standards of credit checks and risk controls.
1 Response to In your view, should the government have a normative policy regarding hom ownership and/or mortgage lending?
Sydney Tom
January 24th, 2010 at 9:21 am
No. The current financial crisis partly stemmed from the fact that government policy was directed to encouraging lower income groups to buy homes and encouraging banks to lend money to them through the guarantees provided by Fannie Mae and Freddie Mac.
The creditworthiness of such loans became secondary to the policy of higher home ownership rates, and this led to the high default rates that we see now on sub-prime loans.
Likewise, the government should have no role in deciding how much mortgage lending to do, as it does not have the expertise to judge the creditworthiness of loans. What it can and should do is regulate mortgage lenders to ensure that they adhere to minimum standards of credit checks and risk controls.