Ronald Utt
2008-04-30 07:00:00.0
Current rank: Not ranked

WASHINGTON -

The collapse of the subprime mortgage market in late 2006 set in motion a chain reaction of economic and financial adversity that has spread to global financial markets, created depressionlike conditions in the housing market and pushed the U.S. economy to the brink of recession.

In response, many in Congress and the executive branch have proposed new federal spending and credit programs that would greatly expand the role of government in the economy but do little to alleviate the distress caused by the financial crisis that has spread rapidly to nearly all sectors of the economy. …

With the overall economy seemingly blameless for the current housing market problems, all evidence suggests that something went terribly wrong in the mortgage market and that it needs to be repaired to prevent a repeat in the future. ... The history of federal mortgage finance regulation is largely one of costly failure. There is no rational reason to expect better results from more regulation in the future. …

[But] former executives of a major mortgage lender have recently announced plans to raise $2 billion to buy distressed mortgages at a discount, restructure them and resell them as performing mortgages at a profit.  Other financial firms are looking to enter the same market.

For example, the Private National Mortgage Acceptance Company, or PennyMac, was created for just this purpose. Congress, the U.S. Treasury and the Federal Reserve should look for ways to encourage the private sector to create many more such entities, including a review of relevant tax laws and regulations that may hinder their creation. …

heritage.org/Research/Economy/bg2127.cfm