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Obama Wants You to Solve the Mortgage Crisis

Uncle Same Wants YouThe Obama administration is looking far and wide for ideas on how to restructure America's housing finance system in the wake of the subprime mortgage crisis. In fact, they want to know what you think. You, me, your neighbor, your kid, anybody. No kidding.

In fact, they even came up with a questionnaire, a list of seven questions designed to help determine what role the federal government - including Fannie Mae and Freddie Mac, the GSEs (Government Supported Enterprises) at the heart of the housing collapse - should play in ensuring the availability of funds for mortgage lenders.

Why does it bug me that the most powerful nation on earth is using crowdsourcing to solve the biggest crisis we've ever faced, a crisis that nearly caused a global financial meltdown and almost plunged the world into another great depression? Before we answer that, let's take a look at the questions:

  1. How should federal housing finance objectives be prioritized in the context of the broader objectives of housing policy?
  2. What role should the federal government play in supporting a stable, well-functioning housing finance system and what risks, if any, should the federal government bear in meeting its housing finance objectives?
  3. Should the government approach differ across different segments of the market, and if so, how?
  4. How should the current organization of the housing finance system be improved?
  5. How should the housing finance system support sound market practices?
  6. What is the best way for the housing finance system to help ensure consumers are protected from unfair, abusive or deceptive practices?
  7. Do housing finance systems in other countries offer insights that can help inform U.S. reform choices.
While getting input from smart people would seem like a good idea, from a positioning standpoint, it isn't always wise. It sort of sends a message that we really don't know what the heck we're doing. But it's the last question that really rubs me the wrong way. I just think it goes a long way to eroding what's left of America's standing as a world economic power.

To me, it tells the rest of the world, "Well, we narrowly avoided disaster that would have taken all of you down with us, and we have absolutely no clue how to prevent it from happening again. Got any bright ideas?"
Now, before we get to hear what you think about all this, here's what I had to say about the GSEs over a year ago in answer to Who's Responsible for the Financial Crisis:

Daniel Mudd, Frank Raines and Richard Syron. Mudd was CEO of Fannie Mae from 2005 to 2008, and vice chairman and COO from 2000 to 2005 (while Raines was CEO). Syron was CEO of Freddie Mac from 2003 to 2008. As instruments of political agenda - a flawed model from the start - fueled the sub-prime crisis by backing half of all U.S. mortgages.
Now, here's what former federal regulator Armando Falcon said at a recent congressional hearing (from a Reuters story):
"The Fannie and Freddie model of publicly traded and privately held government-chartered companies is inherently flawed." He went on to say that the present set-up gives the GSEs "market and political power that ... breeds arrogance, greed, excessive risk taking and abuse. If Fannie and Freddie are allowed to continue in any variation of their current form, another commission, at some future date, will again be asking the same questions of what went wrong."
He's absolutely right. And, at the same hearing, Mudd said that the GSEs' best future role would likely be to help first-time homebuyers with traditional 30-year fixed-rate mortgages and 20 percent down payments.

Mudd may be one of the culprits behind the whole mess, but I completely agree with his statement. It was, in fact, a government-sponsored special interest rate that enabled me to buy my first home way back in 1984. Indeed, it was a 30-year, 20 percent down mortgage. And I got it from a bank, not some mortgage broker, and the bank actually carried the mortgage, instead of packaging it and selling it off. That's the way it should be.

But that's just me. What do you think? And how about that questionnaire?