Focusing on Fannie and Freddie: The Dilemmas of Reforming Housing Finance
Lawrence J. White
New York University (NYU) - Leonard N. Stern School of Business; Leonard N. Stern School of Business - Department of Economics
NYU Working Paper No. EC-02-01
Fannie Mae and Freddie Mac are unique and controversial participants in the housingfinance system of the United States. Because of these enterprises' federal government charters, the financial markets believe that the government would not allow Fannie and Freddie to fail to honor their debt obligations, and they are thereby able to borrow more cheaply in credit markets; in turn, they lower interest rates for residential mortgages. If the financial markets are right, however, Freddie and Fannie also create a contingent liability for the government. Though there are positiveexternalities from home ownership, the Fannie/Freddie route is far too broad and unfocused to address those externalities effectively. Privatization, accompanied by targeted federal assistance for potential first-time low- and moderate-income home buyers, would be a superior policy direction.
Number of Pages in PDF File: 36
Keywords: housing finance, mortgages, Fannie Mae, Freddie Mac, government sponsored enterprisesworking papers series
Date posted: October 31, 2008
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