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Editorial: Get U.S. taxpayers out of the home-loan biz

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Defying the conventional wisdom that you can’t build political momentum around a good idea, President Barack Obama has joined congressional Republicans and Democrats in calling for a phase-out of taxpayer-backed mortgages.

Naysayers should remember the $187 billion Fannie Mae/Freddie Mac bailout of 2008, of which just $50 billion has been repaid. And the tens of millions of dollars in compensation to disgraced chief executives of the two quasi-government agencies, the $38 million in annual pension payments, $11 million in retiree medical costs and $114 million in legal bills tied to the accounting scandals or financial crisis. If the lending giants had filed for bankruptcy, their corporate-backed pension programs would have been on the hook.

Instead taxpayers are. Every year.

While the phase-out would constitute a sea change in the mortgage industry – Freddie and Fannie own or guarantee half of all mortgages in the 50 states and 90 percent of new ones – it is past time to shutter these unaccountable government-backed profiteers.

As the president said in Phoenix this week, “for too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag.”

And that bag just keeps getting heavier.

The plans by the president, Senate and House would return the bulk of risk to the private lending sector, exactly where it belongs in an economy based on capitalism. There would still be government oversight, the option of taxpayers being the guarantor of last resort, and a push to ensure continued wide homeowner access to fixed-rate 30-year mortgages.

On the most basic level it is simply more accountable to have the folks making the loan decisions be the ones with skin in the game. Then, unlike in the runup to the burst of the housing bubble, they might actually calculate financial risk and act appropriately.

And while mortgage rates will likely increase – estimates range from $75 to $135 a month – having the people borrowing and lending pick up the tab is fairer than sticking it to taxpayers.

Obama says “the good news is right now there’s a bipartisan group of senators working to end Fannie and Freddie as we know them.”

That’s good. Because too much of what we know about that pair has cost taxpayers too much.

This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.

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