The Nationalization of U.S. Mortgages
By David Henderson
First, banks have partially withdrawn from the mortgage game after facing swathes of new rules and $110 billion of fines for misconduct. They still own mortgage-backed bonds and they still make home loans to wealthy folk, which they keep on their balance-sheets. But with the exception of Wells Fargo they are less keen on writing riskier loans in their branches and feeding them to securitisers. New, independent firms like Quicken Loans and Freedom Mortgage have filled the gap. They originate roughly half of all new mortgages.
The second big change is that the government’s improvised rescue of the system in 2008-12 has left it with a much bigger role (see chart 3). It is the majority shareholder in Freddie Mac and Fannie Mae, mortgage companies that were previously privately run (though with an implicit guarantee). They are now in “conservatorship”, a type of notionally temporary nationalisation that shows few signs of ending. Other private securitisers have withdrawn or gone bust. This means that the securitisation of loans, most of which used to be in the private sector, is now almost entirely state-run. Along with Fannie and Freddie, the other main players are the Veterans Affairs department (VA), the Federal Housing Administration (FHA) and Ginnie Mae, which helps the FHA and VA package loans into bonds and sell them.
This is from “Comradely capitalism: How America accidentally nationalised its mortgage market,” The Economist, August 20, 2016. These two paragraphs come immediately after the subtitle “The Trouble with Gosplan.” The noun Gosplan should ring a bell: it was the central planner of the Soviet economy from 1921 to 1991.
The whole piece is excellent, I think. Why “I think?” Because although various friends of mine love The Economist, I don’t. The motto for that publication should be “Sometimes wrong; never in doubt.” There’s a tone of certainty in so much of its articles that is unjustified. I think that’s one of the pitfalls of unsigned articles.