The financial reform bill enacted last week is a significant step toward a much-needed modernization of our regulatory structure. It will provide tools to help mitigate and manage the next financial crisis. But the job remains unfinished until Congress addresses the housing policies that fueled the crisis — a big part of which requires reforming and dramatically scaling back Fannie Mae and Freddie Mac, the two government-sponsored housing enterprises that brought our nation’s financial system and our entire economy to the brink of collapse.

A significant root cause of the crisis was the combined weight of government policies promoting homeownership; these are apparent in the housing GSEs, the Federal Housing Administration (FHA), the Federal Home Loan Banks, the federal tax deduction for mortgage interest and various state programs. Homeownership was overstimulated to the point that it was unsustainable and dangerous to the broader economy.

The GSEs, now placed in conservatorship, and the FHA still provide a massive subsidy to our housing market, touching more than nine out of 10 new mortgages. When the housing market is clearly recovering — and it is still far from robust — we must have the fortitude to create a more level playing field between housing and other productive investments.

Full story is available on The Washington Post

Play games on Finance Blog