There is already disappointing drift from Republican Congressional leadership that the privatization of Fanne Mae and Freddie Mac must be delayed or at least phased in over a longer period because of the anticipated impact on available housing finance that would result from a precipitous removal of what is, in effect, a government-subsidized floor on housing prices. Two truths emerge here: one is that, yes, government subsidies to these entities are artificially propping up housing prices, at a cost to taxpayers, so far, of $134 billion, and two, these same props are postponing the market clearance of the toxic mortgage markets and their underlying collateral and thereby greatly delaying the resolution of the problem and a return to a healthy housing market. This facade has been in place for over three years, well known to all knowledgeable observers, including the sponsors of the new financial industry regulatory overhaul bill which did nothing to address this problem in the slightest. There is no doubt that there will be an additional big hit to housing values when this day of reckoning comes (some observers predict as much as 20%) but the sooner we take it and allow the market to clear, whatever the pain, the sooner this debacle will be behind us, the uncertainty of the overhang reduced, and real recovery can proceed.
