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

Posted: 8 Mar 2003

See all articles by Lawrence J. White

Lawrence J. White

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

Multiple version iconThere are 2 versions of this paper

Abstract

Fannie Mae and Freddie Mac are unique and controversial participants in the housing finance 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 positive externalities 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. Journal of Financial Services Research, Vol. 23, No. 1, February 2003. Available at SSRN: https://ssrn.com/abstract=382982

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

Register to save articles to
your library

Register

Paper statistics

Abstract Views
626
PlumX Metrics