Mpls Fed president calls for changes to mortgage markets

The president of the Federal Reserve Bank of Minneapolis said the U.S. needs to rethink public policy programs that encourage home ownership.

Narayana Kocherlakota made his comments Tuesday at a summit focused on home ownership for non-traditional groups, including minorities. It was sponsored by the Minnesota Home Ownership Center.

Kocherlakota said programs such as the mortgage interest tax deduction make home ownership easier. But they also encourage homebuyers to take on debt, and sometimes lots of it.

"If we truly want to encourage home ownership, we should contemplate programs that provide incentives for individuals to save and become equity holders in their homes -- and, by extension, in their communities," he said.

Kocherlakota also said the federal government needs to play a smaller role in guaranteeing home loans.

"Over time, our country needs a mortgage market that returns to greater reliance on private risk-taking and private risk assessment, along with the enhanced regulatory oversight that is already in place," he said. "In fact, discussions are currently taking place on suitable options for bringing more private capital back into the mortgage market."

Kocherlakota said about 90 percent of mortgages over the past two years were guaranteed by Freddie Mac, Fannie Mae, the Federal Housing Authority, or the Veterans Administration.

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