In recent weeks, the debate over what to do about the mortgage giants Fannie Mae and Freddie Mac has shifted from wholesale replacement to genuine reform.
Fannie and Freddie, now in the eighth year of a conservatorship that began in the depths of the financial crisis, remain in in limbo even after paying back nearly $238 billion to taxpayers — that’s $50 billion more than they were ever loaned in the first place.
But that’s not to say that we’re any closer to Congress actually acting on GSE reform. Politics has something to do with the government’s inaction, but so does the complexity of redesigning the entire housing finance market. Replacing Fannie and Freddie with an untested model would be impractical, if not destabilizing, for our housing economy. According to Federal Reserve data these two companies support $4.5 trillion of the $9.9 trillion U.S. mortgage market for one- to four-family residences. There simply isn’t enough private capital to fulfill the role they play without raising mortgage rates substantially.Posted: Oct 6, 2015