Reforming Fannie and Freddie

Abstract:     
There is a growing consensus that reform is needed for the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. It is often suggested that the connections between the GSEs and the federal government should be permanently severed and the firms reduced in size so that their instability will no longer threaten the broader housing market; however, political realities block that policy option. This article instead recommends that the firms' mortgage insurance and securitization business for be transferred to a government agency, where it would operate much like the longstanding and successful FHA and Ginnie Mae programs for lower-income mortgages. The retained mortgage portfolios would be spun off to the GSEs' shareholders, with no explicit or implicit links to the federal government.

Number of Pages in PDF File: 6

Keywords: Fannie Mae, Freddie Mac, regulation, government-sponsored enterprises, housing, securities, mortage, privatization, mortgage-backed securities, subprime, financial, crisis, conservatorship, Ginnie Mae, Federal Housing Authority, FHA

JEL Classification: R3, R31, R38, R21, E44, G12, G18, G2, G21, G28

Accepted Paper Series