The Housing Aid Debate Goes On As Rome Burns

Secretary of the Treasury Tim Geithner says that the the US must keep a role in the housing market recovery as it there is one. He claims that the federal government must be careful in withdrawing financial support from Fannie Mae and Freddie Mac although that support will eventually have to be cut back.

Bond management giant Bill Gross of Pimco says that the home price problem will never be solved unless there is a “full nationalization” of the mortgage-finance system. The government, he says, must become the lending institution that stimulates home buyers to want to come back into the market, either due to new tax credits or perhaps “zero percent” financing.

A number of members of Congress, probably playing to the voters who they hope will re-elect them this November, want the government to withdraw its support from Fannie and Freddie to save taxpayers tens of billion of dollars. They ignore the probable effect of this action which would be a further collapse of the housing market

All of this debate goes on without a concrete plan by Congress and the Administration to actively address the problem. Bill Gross may be right, but he does not have a vote in the matter.

There is not a single sign that the housing market is getting better and there are a number of signs that it is getting worse. Absent some intervention, there is no reason to believe that home prices will not go down another 10% in some markets during the next year. Even in areas where home prices are stable, there is no evidence that those prices can move up.

A number of people and institutions have offered advice on how to save housing, but all of that opinion has fallen on the deaf ears of the government

Douglas A. McIntyre