In a speech Tuesday in Phoenix, Obama call[ed] for transitioning the business model of Fannie and Freddie into a system where “private capital must be wiped out before the government pays on any form of catastrophic guarantee,” a senior administration official said.
If he really wants to, this is mostly good. Those taking the risks should be the ones to reap the rewards—and the only ones to suffer the loss. Taxpayers should not be dragged into a failure at all.
And that’s the “mostly” part: “before the government pays on any form of catastrophic guarantee” should not be a player at all. This is what private insurance in a free market is for.
Obama will also renew his calls for sweeping mortgage refinancing legislation when he travels to Phoenix Tuesday.
Here, not so much. The only sweeping legislation necessary is the repeal of the Community Reinvestment Act, a high-minded sounding idea that in the realization has been used only to browbeat lenders into making bad loans to poor credit risks.
…a call for expanding refinancing eligibility for homeowners who do not have government-backed mortgages.
In particular, there’s no need for a government determination of “refinancing eligibility.” The market will determine that, just fine. Government distortions from the market do no good at all; they only destroy the pricing information extant.