In the good old days, we just had Fannie Mae, there was no Freddie Mac, nor were there mortgage-backed securities. Fannie Mae was a public company, no shareholders, just the government. And there were none of the privately issued mortgage-backed securities that blew up so spectacularly when the housing bubble collapsed.
During this period we saw an unprecedented surge in middle-class and working-class homeownership. It was during the decades after World War II that a majority of the country became homeowners. Then in the late 60s we moved away from this simple system. We privatized Fannie Mae and created its sibling Freddie Mac as a quasi-public corporation. Both provided dividends and capital gains for shareholders and Wall Street pay for top executives, while giving the risk to taxpayers. During the 40-plus years that we opened up the system to the private sector, we have made almost no progress in expanding homeownership.
It is reasonable to ask why we don’t just go back to the old system. After all, the system of home finance was supposed to make homeownership simple and cheap. The old Fannie model did just that. Given that Fannie Mae and Freddie Mac are now both effectively owned by the government, it would seem the simplest route is to just leave them owned by the government.
Many economists and policy analysts have been employed at six-figure salaries designing convoluted new public-private hybrids. And there will undoubtedly be many seven-figure jobs running these hybrids corporations if these plans are put in place. However, there is zero reason to believe that these convoluted schemes will better serve homebuyers than a simple government-run mortgage system.
The people who want to buy mortgages that resemble complicated lottery games will still have the option to go to Wall Street for whatever crazy products its wizards can dream up. But the vast majority of people who see a mortgage as a way to finance a home purchase will have a low cost alternative. What’s wrong with that?
This post originally appeared on the New York Times' Room for Debate.