It seems that everybody you talk to is watching NASCAR. Last year, 13 million people attended NASCAR events, with millions more tuning in from home. There are a variety of reasons why NASCAR, with its humble beginnings on the beaches of Daytona, is one of the fastest growing spectator sports in the country. And whether fans attend the race in person or watch on television, they know that it takes just the slightest movement of the wheel for race car drivers to correct positioning and direction on the track, and that to over-steer could spell disaster.
It is just that message that should be delivered to Congress, now poised to review and perhaps mandate reforms of our country’s two largest players in the secondary mortgage market -- Fannie Mae and Freddie Mac. To over-steer could spell disaster, indeed.
The impact these two companies have on the housing and construction markets is tremendous, and considering that the housing sector led the current economic recovery, it wouldn’t be wise to tinker too much with the very companies that provided that much-needed financial boost.
Fannie Mae and Freddie Mac have successfully developed a secondary market in fixed-rate, long-term home mortgages and consumers are better off for it. Many credit these two housing giants for lower rates that help make home ownership possible for some 70 million American families.
Home ownership is the cornerstone of our nation’s ownership society. Ownership puts people in control of their lives. In fact, homeowners are almost three times more likely to own their own businesses than are renters. Homeowners are happier in their neighborhoods and live in them longer, and their children do better in school and tend to be more successful later in life.
A statistic that should matter to Members of Congress is that home owners also vote more often, about 25 percent more often. They are also more likely to be able to identify their Representative in Congress.
Additionally, Freddie and Fannie serve financially underserved groups, particularly minorities, by educating them that home ownership may be within their grasp. The two companies’ initiatives also include expanded access to financing and financial counseling. Just as home ownership is a widespread reality for our nation’s middle-class, it is also a catalyst for our lower-income population to become part of America’s ownership society.
As with any industry this large and successful, Fannie and Freddie have their detractors. Because they are chartered by the federal government, investors assume government will not allow them to fail, even though there has been no such guarantee. Competitors resent the implied promise of the bonds sold by Freddie and Fannie.
When both companies reported accounting irregularities, their traditional bank competitors lost no time in crying foul. As a result, federal lawmakers plan to review Fannie and Freddie, with reforms in mind, over the next several weeks.
While we are by no means a fan of big government, practically speaking, there is a limited role for government to play in the housing and banking markets to ensure the dream of home ownership comes true for even more Americans. Some measure of additional regulatory scrutiny of Fannie and Freddie is now necessary, welcome and even beneficial; wholesale changes are not.
Overzealous reform would likely have unintended consequences that could result in higher interest rates, unstable mortgage markets and fewer families becoming home owners. A reversal of fortunes wrought from our nation’s budding ownership society and broad economic setbacks could soon follow.
As with NASCAR, a light touch of the wheel for guidance is what’s needed. To over-steer could spell disaster for everyone’s American dream.March 31, 2005