Another Plea From Fannie Mae
The mortgage ward of the state needs $3.7 billion from taxpayers

Fannie Mae is again going hat in hand to taxpayers after announcing a $6.5 billion quarterly loss on Wednesday. Washington should take this news as a kick in the keister to finally start winding down the mortgage giant and its busted brother, Freddie Mac . But the Trump Administration seems to be moving in the opposite direction.

When the housing mania turned to panic in 2007-08, Fan and Fred called in their implicit government guarantee, at a cost of almost $190 billion. The pair, now in “conservatorship,” have since paid back that amount, and their profits continue to flow to the Treasury—as they should, given that the taxpayer guarantee hasn’t been revoked.

The trouble is that Fan and Fred were left in limbo. Hedge funds bought up their shares, betting they could pressure Washington into bringing back the old business model of public risk and private reward. Investors filed lawsuits claiming that the government was illegally seizing Fan and Fred’s earnings.

Fannie’s latest dip into the Treasury will be dismissed as an accounting fiction—and maybe so, but it’s a useful one. Congress’s recent tax reform decreased the value of tax deferrals on Fannie’s balance sheet, resulting in a one-time charge of $9.9 billion. Because Fannie hasn’t been allowed to keep a large capital buffer, it now needs a $3.7 billion infusion. While this is hardly ideal, at least taxpayers are getting the profits along with the losses.

But the ultimate solution is to wind down Fan and Fred, leaving mortgage risk to private enterprise. One idea, proposed in these pages by former FDIC Chairman William Isaac and former Wells Fargo Chairman Richard Kovacevich, is simply to lower each year the cap on mortgages Fan and Fred can guarantee—by, say, $100,000. If lawmakers flinch at such plans because they’re worried about spooking the housing market, there could hardly be a safer time than now to act. The rate of homeownership is climbing again, to 64.2% in the fourth quarter of 2017, a three-year high. The economy is strong and interest rates are still historically low.

But unless Congress passes legislation, the Trump Administration seems likely to let Fan and Fred live on. In December the Treasury and the Federal Housing Finance Agency made a new agreement allowing Fan and Fred to keep capital buffers of $3 billion each.

Last month Treasury Secretary Steven Mnuchin told the Senate Banking Committee: “I think it’s critical that we have a 30-year mortgage. I don’t believe that the private markets on their own could support it.” But many countries have robust housing markets and ownership rates without a 30-year mortgage guarantee.

Mr. Mnuchin sounds like his predecessor, Democrat Jack Lew. Wasn’t Donald Trump elected to eliminate crony capitalism?