Does Government do housing finance better than the private sector?

In my adult lifetime we have had two financial blow ups in the private housing finance market.  The Savings and Loan debacle in the 1980's cost taxpayers somewhere around 700 billion dollars.  The final tab for the more recent blow up is still in doubt but it could cost the taxpayers trillions, but for the sake of making a point I will conservatively estimate it will cost at least as much as the 1980's event.  So in the last 40 years taxpayers have been dinged for at least 1.4 trillion dollars to bail out private housing financiers.

That of course doesn't consider the cost of the lost economic output, the dislocation in millions of lives from foreclosures, and the ongoing cost to people trapped in underwater mortgages.

On the other hand...

Ever since at least WW II, maybe before, California has had a stand alone home loan program for Veterans.  As far as I know it never cost taxpayers a dime.  Unlike most Federal programs California's program doesn't create screwball public private partnerships that guarantee loans made by private lenders.  Instead California issues bonds, then uses the money from the bond sales to make loans directly to veterans to buy a home.  The Veterans mortgage payments are used to  repay the bondholders.  The program has plugged along for at least 60 years putting a lot of people into homes without any cost to taxpayers.

Hmmm......seems to me the evidence would suggest that direct government financing of home loans is a pretty safe and sane way to help people buy homes.

I know some of my Republican friends are jumping up and down thinking "what about Fannie Mae and Freddie Mac - they are government programs that were a big part of the problem in the current housing collapse".  Well, Fannie Mae and Freddie Mac aren't really government programs - they are both "public-private partnerships" - those designed by committee entities that usually end up exhibiting the worst characteristics of the constituent parts.  Fannie Mae and Freddie Mac are not owned by the government, they are owned by stockholders, government just guarantee's them against any loss.  So with Government guaranteeing they won't lose money, the stockholders and management of Fannie-Mae and Freddie Mace got greedy and went out and took crazy risks.

I think a government direct lending program that uses the power of governments to sell bonds and provide tax free returns could play a big part in bringing the housing market back to some degree of health.  Perhaps the best solution would be a program that operated at the city level, where the city can take an equity interest for a reduced mortgage payment in cases where the people want to stay in the home but are underwater.

This is a constructive goal occupy Wall Street could take on.  Making big banks irrelevant.