Lawsuits Highlight an Administration at Odds on Housing
By Kevin Wack
The massive lawsuits that the federal government brought last week against many of the largest U.S. and global banks underscore the deepening tension within the executive branch with regard to housing. At issue is how to allocate the staggering, debt-fueled losses that stem from the bursting of the housing bubble starting in 2007. Families that borrowed to buy homes will obviously bear a large share of the losses. The rest of the tab will ultimately be divided between lenders, private investors and U.S. taxpayers. How much each group will pay is still to be determined. The government, while seeking to protect taxpayers, can’t seem to make up its mind who should foot the bill. Some said one reason the government’s policy is confused is the conservatorship of Fannie Mae and Freddie Mac, which are now effectively being run by the FHFA. Under the law, the FHFA is charged with protecting taxpayer dollars, and its lawsuits are an effort to shift some housing sector losses from taxpayers to lenders. Karen Shaw Petrou of Federal Financial Analytics said that when the FHFA was established the belief in Congress was that if Fannie or Freddie ever had to be bailed out, the FHFA would be in control of the mortgage giants only briefly. It has been in charge for nearly three years. “The fact is that there is an inherent and profound conflict here, which is why the conservatorship was never meant to last this long,” Petrou said.