Some questions just come too late. So do some answers.

Such was the case at a recent American Enterprise Institute (AEI) forum on capping the mortgage-backed security (MBS) portfolios of Fannie Mae and Freddie Mac, the congressional chartered, secondary mortgage market makers. Critics claim these government sponsored enterprises' $1.5 trillion portfolios could pose risks to the financial system.

Federal Reserve Chairman Alan Greenspan has suggested to Congress that the portfolios be capped at $100 billion each -- less in total than some major banks now hold. Key committees in Congress are promising action this year.

The AEI forum reviewed a new paper by University of California-Berkeley finance professor Dwight M. Jaffe. Echoing Greenspan's position, the paper rejected the notion the portfolios provided any social benefit, such as lower interest rates, while posing financial dangers if Fannie and Freddie mishandle their prepayment and interest rate risk. So, Jaffe wants those risks spread to other participants.

His preferred recipient would be borrowers themselves, picking up penalties if they cash in their mortgages early. Jaffe said redesigning the fixed-rate, prepayable without penalty mortgage was his "first best" solution. Jaffe has previously argued that "the prepayment option makes 30-year mortgages the toxic waste of fixed income securities." Short of elimination, he would have Fannie and Freddie reduce their portfolios supporting such mortgages, á la Greenspan.

Other panelists applauded that view. But not University of Florida finance scholar Mark Flannery, co-author of Flannery & Flood's ProBanker financial game and editor of Money, Credit and Banking.

Flannery said Fannie and Freddie and their portfolios do provide a social good -- liquidity. This liquidity lowers mortgage rates several times more than the .07 percent reduction Jaffe suggested.

Further, the notion that spreading prepayment risk around was a good idea put Flannery in mind of nuclear waste. Would it be better to give a little bit of it to everyone in the country to keep in the basement rather than concentrate it in a place that could deal with it more safely?

That certainly might happen if Fannie and Freddie were handcuffed from providing sufficient liquidity for fixed-rate, easily prepayable mortgages. Indeed, there is reason to suspect that critics of Fannie and Freddie are using their supposed risks as a stalking horse for what they think is a preferable mortgage vehicle, at least for banks -- the adjustable rate mortgage.

A year ago, before the Credit Union National Association Government Affairs Conference, Greenspan said: "Fixed rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance."

He then called for "greater mortgage market alternatives to the traditional fixed-rate mortgage" for U.S. households "willing to manage their own interest rate risks." He even noted that in the 1990s with the Fed's cuts in the prime rate, to which ARMs are pegged, home owners would have saved thousands of dollars in interest expense, though he admitted that would not have been the case if interest rates had risen instead.

Indeed, a new study by the Federal Deposit Insurance Corp., which ensures bank deposits, warns that such loans now may "expose owners to large jumps in monthly interest payments as interest rates rise."

That's what happened in the United Kingdom, where ARMs are the predominant form of housing finance. Between 1972 and 1974, base rates jumped 1000 points -- 10 percentage points; between 1977 and 1980 by 800 points, and between 1988 and 1990 by 600 points. In each instance, the result was a dramatic drop in housing prices, cuts in personal disposable income and rising unemployment -- just the flip side of what happened when Americans prepaid their mortgages through refinancing to take advantage of lower rates during the debt crisis of 1998 and the after shock of 9/11, thus maintaining consumer spending and mitigating recession.

Still, ARMs remain in vogue in the UK. Why? According to the Miles Report for the UK Treasury, most borrowers are unsophisticated about the dangers of interest rate volatility and focus on initial interest cost. It recommended that the government find ways for homeowners to hedge their interest rate risk -- including government creating a derivatives market to help home buyers protect against it. In short, it wants to transfer some toxic interest rate and prepayment risk from homeowners' basements back to the government.

But America also may have a more fundamental need for fixed-rate, readily prepayable mortgages than other countries do. Mobility.

That was a point raised by Flannery in answering a question from a young man who said he was from Credit Suisse. It unfortunately came after the AEI forum had ended.

Why, the young man asked, are prepayable, fixed-rate mortgages so prevalent here when they are nearly unheard of in Europe? And Flannery responded that Europeans just aren't as mobile, so maybe they don't need them as much. Indeed, as the Joint United States and European Union Conference reported in 2002, more than twice as many Americans -- 16.1 percent -- "moved house" in any particular year versus 7.2 percent for EU residents.

While most of the moves were just local and undertaken by young people, three percent of Americans change states each year, double the level who make comparable moves in Europe.

This is vitally important to the economy. Not only does it help the United States have unemployment levels below most of Europe and the rest of the world, but, as William Poole, president of the St. Louis Federal Reserve Bank, noted in 2003:

"Compared with their counterparts in other countries, when a person becomes unemployed in the United States, he or she usually finds new employment relatively quickly. In 2001, for example, only 0.3 percent of the U.S. labor force was unemployed for more than one year. By contrast, in Japan, 1.3 percent of the labor force was unemployed for more than one year, and in Germany, some 4 percent of the labor force was unemployed for more than one year."

And while many factors play into that, a key one is, as Poole noted, "Americans tend not to be tied down by the ownership of their homes."

"Although home ownership is more widespread in the United States than in many other countries Editor's note: 68 percent compared with 41 percent in Germany, the U.S. market for long-term mortgages is relatively efficient and the transactions costs associated with real estate transactions are relatively low."

This has national implications, as Poole pointed out: "The high mobility of the American labor force has been a key determinant of our nation's economic success. This mobility implies that when new opportunities are created that boost labor productivity in existing industries, or lead to the birth of entirely new industries, people can and do move freely to supply the labor necessary to build those industries."

What would happen though if Americans were "house bound" by having to pay an added 3 percent to 5 percent on top of their mortgage? It certainly would give them another reason not to take advantage of those "new opportunities."

Reform of the U.S. mortgage market must focus on safety and soundness in dealing with risks, but not try to hide them in the basements of homeowners where they could prove even more economically toxic through immobility risk.

Duane Freese has 26 years experience writing opinion, features and news. He is known for reducing complex subjects such as telecommunications deregulation and federal budget deficits into understandable terms that keep people attentive. Mr. Freese began his career at the Battle Creek Enquirer, where he rose from a general assignment reporter to editorial page editor in five years. As editorial page editor, he won first place awards from Gannett and from the Associated Press of Michigan for his editorials. He led campaigns to create a commission on police brutality against minorities and on behalf of community services for the mentally retarded and mentally restored. In addition to writing daily editorials, Mr. Freese also wrote weekly columns to add a face and a name to the editorial page of the newspaper, making it less impersonal. For his editorial work, he was recognized as one of only 15 journalists from around the globe awarded fellowships to the University of Michigan in 1986.

After his yearlong fellowship, Mr. Freese was invited to join the USA TODAY editorial board where he became an editor-writer. In his nearly 13 years at USA TODAY, he argued for and won board consensus on issues such as balanced budgets, tort reform and economic deregulation. He also helped explain investment and retirement issues, drawing on knowledge gleaned as the author of "Retirement Planning - The Real Mid-Life Crisis." And he played a key role in the first major redesign of USA TODAY's editorial pages in 1991 as the back-up director of editorial page operations.

During the O.J. Simpson murder trial, Mr. Freese wrote editorials on legal issues from cameras in the court to the admissibility of DNA evidence. He wrote numerous editorials dealing with Federal Reserve policy and trade related issues arising from the Asian economic crisis of 1997 and 1998. In the Monica Lewinsky case, he researched and wrote editorials dealing with Ken Starr's investigative techniques and President Clinton's privilege claims. And in 1998 and 1999, his editorials focused on the New Economy being created by computers and the telecommunications revolution. His writing won him numerous in-house awards, including being named to the first group of USA TODAY fellows for 1997 and 1998.

Born and reared in the Detroit area, Mr. Freese graduated from Albion College with a Bachelor of Arts degree in 1971. He attended the University of Michigan Graduate School of Business Administration, studying international economics and business and government before doing graduate work in journalism at the University of Missouri-Columbia, where he also took part in the London reporting program.

Mr. Freese currently is living in Falls Church, Virginia, where he is engaged in personal writing projects.