Progress on Housing Finance Reform
Investors’ protection should also be boosted by another provision that requires banks to distinguish deposits made for savings from those made for investments. Banks will also need to guarantee the principal amount on savings deposits. The IFSA also gives Malaysia’s finance ministry more powers to further scrutinize financial holding companies and non-regulated entities if they pose a risk to financial stability. “From my view, it is quite comprehensive. The challenge is to ensure the enforcement, and to make people understand it,” Akram added.
Other possible outcomes for housing finance reform are to maintain the status quo in which Fannie and Freddie are controlled by the government and there is no private capital, or to move to a private system in which government involvement is limited to the small share of loans made with the involvement of agencies such as the Federal Housing Administration that work with targeted groups of borrowers. Both of these alternatives are flawed. The current government-dominated system exposes taxpayers to needless risk and stifles the possibility of beneficial competition and innovation. Not moving forward with reform would lock in this unfortunate situation. A move to a fully private system seems desirable, but it is difficult to see this as a stable outcome or one that actually protects taxpayers in the event of an inevitable future crisis. This is because the government will feel compelled to intervene in the face of any future housing market collapse, regardless of promises that the system was private.