What’s Wrong With House Republicans’ Alternative Plan

There’s about $12 trillion in U.S. residential mortgage debt outstanding. At the end of 2007 $591 billion of that was explicitly insured by the federal government, through the Federal Housing Administration and the Veterans Administration, and another $5 trillion was either owned or guaranteed by Fannie Mae and Freddie Mac. Fannie and Freddie have since been nationalized, and the market share of all the government lenders has only grown since then. The government already insures half the mortgage debt out there, Cantor & Co. argue, so why not just insure the rest?

It turns out that people at Treasury and the Fed actually did discuss expanding mortgage insurance when they were tossing around ideas earlier this year for halting the mortgage meltdown, but decided it wouldn’t have nearly the impact on getting markets moving again that buying mortgage securities outright would.