Fannie and Freddie and Financing the American Dream

20 Pages Posted: 21 Oct 2008

See all articles by Mark R. Eaker

Mark R. Eaker

University of Virginia - Darden School of Business

Sayan Chatterjee

Case Western Reserve University - Weatherhead School of Management

Charles Shepard

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Abstract

This case presents a short history of mortgage finance in the United States and the two government-sponsored enterprises that dominate the market. Recent debates about their current and future roles are discussed.

Excerpt

UVA-F-1402

FANNIE AND FREDDIE AND FINANCING THE AMERICAN DREAM

America enjoys the world's best housing-finance system. . . . In fact, our nation's mortgage-finance system works so well that most Americans take for granted a reliable supply of low-cost mortgage credit in communities across the nation, every day.

—Leland Brendsel, CEO of Freddie Mac

The 1990s had been an astounding decade for Fannie Mae and Freddie Mac. The two government-sponsored enterprises (GSEs)—privately owned and managed but responsible by congressional charter for the health of the nation's housing-finance system—were widely credited with the ready availability of affordable mortgages and rising rates of home ownership in the United States. Homeownership had climbed to an unparalleled 68 percent. The GSEs were growing swiftly—in the 10 years ending in 2001, Fannie's net income had quadrupled and total assets had quintupled—and were harvesting generous returns for their shareholders.

But the GSEs' accomplishments and prosperity had created unintended consequences: Fannie and Freddie had grown so big that they found themselves portrayed as a potentially serious threat to the nation's capital markets by their competitors and some economists, government regulators, and elected officials such as Richard H. Baker, a Louisiana Republican and chairman of the U.S. House of Representatives' Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises. Some critics even suggested that it was time to do away completely with the companies' special status and force them to compete on the same playing field as their competitors in the housing-finance marketplace.

. . .

Keywords: mortgage, finance, public, policy capital, markets

Suggested Citation

Eaker, Mark R. and Chatterjee, Sayan and Shepard, Charles, Fannie and Freddie and Financing the American Dream. Darden Case No. UVA-F-1402. Available at SSRN: https://ssrn.com/abstract=1279327

Mark R. Eaker (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
703-995-2166 (Phone)

HOME PAGE: http://www.darden.edu/faculty/Eaker.htm

Sayan Chatterjee

Case Western Reserve University - Weatherhead School of Management ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States

Charles Shepard

affiliation not provided to SSRN

No Address Available

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