Lunchtime Must-Read: Michael Hiltzik: FHFA Director Mel Watt Should Fix the Economy and Boost Housing Construction by Unleashing Fannie and Freddie!

Michael Hiltzik: The housing market is still a drag on the economy–but why?: “Housing has stood out as the sick man of the U.S. economy…. Here’s that truth, as we see it: the 30-year fixed mortgage is still the bedrock of residential housing and still should be.

That means restoring Fannie Mae and Freddie Mac to their traditional roles as the backers of that market…. [Felix] Salmon thinks… the 30-year fixed mortgage… should be phased out altogether…. That’s too facile…. The 30-year fixed is what got us out of the housing morass of the ’30s and could do so again…. An entirely private housing finance system is a ‘pipedream’, as Adam Levitin of Georgetown University lectured the House Financial Services Committee…. Take the shackles off Fannie and Freddie, and let the 30-year fixed mortgage work its magic.”

I concur. Without a government backstop, banks should not and will not make lots of thirty-year fixed-rate mortgages. But without thirty-year fixed-rate mortgages widely and easily available, Americans will not want to buy houses and accept the resulting risks. And lots of owner-occupied houses are a very good way to diminish the maintenance moral hazard that can afflict rental housing markets.

Aggregate nationwide thirty-year mortgage risk is something the government and the taxpayers can bear and should bear. And Fannie and Freddie strike me as useful institutions that can be redrafted so that it can be carried properly.