Special adviser to U.S. President Barack Obama, Paul Volcker, said today that reforming the U.S. mortgage market is the biggest single element missing from financial regulatory reform and further stated that the mortgage industry is dysfunctional and it is a "creature of the government" that needs reform.
In a forum sponsored by the International Economic Alliance in New York, Volcker discussed the need to avoid a "hybrid" institution that is "private when things are going well and public when things are going badly."
In late 2008, at the height of the financial crisis, the U.S. government seized mortgage giants Freddie Mac and Fannie Mae and to date the two entities have taken about $150 billion in direct aid from the U.S. government.
In an effort to prevent a repeat of practices that contributed to a devastating global financial crisis in 2007-2009, new rules governing Wall Street were signed into law earlier this summer to toughen the oversight of financial firms.
Next January the Obama administration is set to offer its plans to overhaul Freddie and Fannie and the debate over the future of the U.S. mortgage finance system will intensify.