What Will Be The Future of the Housing Market?

There have been recent proposals to eliminate the Federal income tax deduction for mortgage interest paid and to eliminate the government's role in guaranteeing loans.  These are likely to have a huge, negative impact on the housing market, already beleagured in recent years.  The elimination of the mortgage interest deduction is one that I suspect might go away, along with many others as Congress starts to tackle our budget and debt situation.  While I suspect that this transition will be very painful for many Americans, we are going to need to create big changes in how we tax ourselves and how we spend money.  I am resigned to the fact that we may lose the deduction for interest paid. 

Shutting down Fannie Mae and Freddie Mac?  That seems like throwing the baby out with the bathwater.  It is also likely to be damaging to our economy far into the future.  The ability for buyers to get government backed 30 year loans has kept banks in the lending game.  Amortizing a loan over 30 years in many markets (including SF) makes expensive loans a bit more affordable.  The reason we are considering shutting down Fannie Mae and Freddie Mac?  Because of the mortgage crisis.  It seems to me that an overhall of these agencies is in order.  And yes, hold executives accountable as appropriate.  I do think that Fannie and Freddie play a key role in the process--allowing buyers to lock interest rates during the purchase process and keeping interest rates lower than they might be if banks set the terms.  It's okay (in fact it's good policy) to require buyers to have larger down payments and excellent credit.  I fear that eliminating the government guarantee will make financing scarce for even well qualified buyers.  This in turn will make it difficult for homeowners to sell.  People won't have mobility and won't be able to move to take new jobs, and this may be more detrimental to the economy in the long run. 

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