International Monetary Fund calls for changes to mortgage lending
The International Monetary Fund is responsible for overseeing the global financial system. A review of the recent recession by the IMF has led to several recommendations for improving the stability of the global financial system. Top of the list is that the U.S. government should go all in or get out of mortgage finance.
Current U.S. mortgage lending involvement
The way the current mortgage market in the United States is structured, the government has a partial hand in most mortgages. Fannie Mae and Freddie Mac own almost 90 percent of the secondary loan market. These two companies are in government conservatorship and have long been government-backed. Combined, this means that the federal government has a significant hand in the country’s mortgage market.
International Monetary Fund’s view of mortgages
Upon reviewing the U.S. Mortgage market, the International Monetary Fund suggested multiple changes. First, the IMF suggests that the U.S. government either put the mortgages it owns fully on its balance sheets or gets out of the mortgage market entirely. Since the Great Depression, the U.S. government has instituted programs intended to encourage home ownership. Tax deductions for mortgage interest, government-supported mortgages and low interest rates all contribute to making recessions worse. The IMF study also highlighted that high loan-to-value ratios and debt-to-income ratios cause overly complex mortgage products that are unnecessarily risky.
Options for housing
In short, the International Monetary Fund believes that the United States government’s policy of encouraging home ownership is misplaced. In many European countries, mortgages are often variable rate and require higher down payments. These factors, combined, keep home ownership rates down and help limit the damage of heavy recessions. In the United States, the IMF believes that mortgage products should be simplified and well-built and affordable rental housing should be encouraged above home ownership.