Protecting the Housing Mission at All Times

Barry Zigas, who headed Fannie Mae's community lending operation until 2006, and has a long history in affordable housing, is one of the most astute observers of the GSEs, especially from the perspective of their mission. And he views the mission both from the broad perspective of making a high quality mortgage market (single- and multi-family) work for the vast bulk of Americans and the narrower perspective of supporting sustainable affordable homeownership lending and affordable rental housing.

Barry has written a superb analysis of the government's activities this weekend concerning Fannie and Freddie. It's important reading. He discusses both the positive aspects of the takeover and the issues that are too capable of falling below the radar, including: financing affordable housing--multi- as well as single-family; encouraging, rather than stifling, loan modifications to prevent foreclosures; handling REO to stabilize rather than further harm communities; and the companies' extensive charitable giving (in an environment in which other sources of philanthropy are also drying up).

I agree with it all except for the words "extremely well" in the third of his recommendations. The combination of Wall Street pressures for continually increasing quarterly earnings, an undiversified business, government backing enabling virtually unlimited growth and relatively light mission direction makes for a very tricky business model. The tensions have been there for years, and in general, Wall Street has won. When there were good opportunities to grow with solid loans, there was alignment. But where those opportunities faltered, as true in the late 80s in one way as in the early 2000s in another, the interests became unaligned and trouble ensued. It's an issue we need to face up to going forward. Without discarding 40 years of critically useful experience.