Focusing on Fannie and Freddie: The Dilemmas of Reforming Housing Finance

36 Pages Posted: 31 Oct 2008

See all articles by Lawrence J. White

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics

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Date Written: September 2001

Abstract

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.

Keywords: housing finance, mortgages, Fannie Mae, Freddie Mac, government sponsored enterprises

Suggested Citation

White, Lawrence J., Focusing on Fannie and Freddie: The Dilemmas of Reforming Housing Finance (September 2001). NYU Working Paper No. EC-02-01. Available at SSRN: https://ssrn.com/abstract=1292647

Lawrence J. White (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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