The Implications of the Proposals of the Hunt Commission for the Mortgage and Housing Markets: An Empirical Study

The Report of the President’s Commission on Financial Structure and Regula&n [19] (hereafter the Hunt Report) recommends important changes in the regulation, supervision, and operation of all major financial intermediaries. A common thread throughout the Hunt Report is the view that financial institutions should operate under the minimum necessary regulation. In this regard the Hunt Report proposes (1) eliminating Regulation Q and related time deposit rate ceilings, (2) authorizing a wider range of asset and deposit powers for the financial intermediaries, and (3) extending many of the service functions that financial intermediaries wish to provide. The Hunt Report acknowledges the concern that may be raised by such proposals in view of the social priority for an ample flow of funds into housing investment, but it argues that the question of the efficiency of financial markets should be separated from the question of the subsidization of socially d&able expenditures. In particular, the Report points out that housing construction may be most efficiently sthnulated by direct subsidies legislated by the Congress. An unfortunate aspect of the Hunt Report is that there is practically no attempt to quantify the likely magnitudes that would be involved if the proposals were adopted. This drawback is particularly severe in the discussion of the mortgage and housing markets. That is, even if one were to agree with the principle of limited regulatory