The chairperson of the Federal Deposit Insurance Corporation, Sheila Bair, did some honest talking – something that among the banking regulators she alone is capable of following the monetary crisis. She delivered recently a speech on Monday 7th June before Housing Association of Non-profit Developer. It was surprising that the speech did not get its due share of attention.

Bair made three suggestions to “put the mortgage industry on a sounder footing.” The first and second related to improved education and protection of consumers and to reforms in the securitized market. Her third suggestion targeted the high goal of home ownership – something regarded as sacred in the politics of the country.

Bair said, “For 25 years federal policy has been primarily focused on promoting home ownership and promoting the availability of credit to home buyers.” She referred to the subsidies often been made to buyers of homes – deduction of interest and property taxes.

She referred to the Fannie Mae and Freddie Mac, the duo GSE’s (Government Sponsored Entities) that plays the double role of guarantor and securitizer of the mortgages. This greatly extended their ability to of the originators of mortgages to advance loans to the home buyers. Both of them have now been taken over by the government. The taxpayers are holding on to the losses that guarantees will bring in.

She added that during the bubble anyone alive could avail of a mortgage and home ownership increased to a record proportion – 69%. But despite laurels from both parties it could not be sustained.

Bair added that homeownership, if it could be maintained is a worthy goal for the nation but it is better not to pursue it to the point of excess. There are many alternative solutions that are equally worthy, that will meet the requirements of the people for those who many not be qualified and eligible for house ownership. They could live as tenants.

She opined that the crisis in the financial system could have been skirted if politically and psychologically the thinking had not made home ownership as a cultural icon. She thinks even today the national leaders are unwilling to bluntly face the truth because ownership of home is intertwined with the Great American Dream. It is because of this that the speech of Bair seemed almost heretical. Perhaps she was hinting that the time has come to snap that link although it may be painful. Perhaps she is not far from the truth.

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