Fannie And Freddie On The Firing Line

by:  Peter J. Gallagher

In a recent post, "Not Fade Away: Could The 30-Year Fixed Rate Mortgage Survive In A World Without Fannie And Freddie," I discussed the growing drumbeat surrounding the efforts of some members of Congress and the administration to do away with, or at the very least reign in, Fannie Mae and Freddie Mac.  Now, Republicans in the House of Representatives have taken the first steps towards this goal, putting forth legislature that would reduce the role both enties play in the market and cut the pay of their executives.  

As reported on Marketplace, "The Problems With Fannie Mae and Freddie Mac," there appears to be some concensus among opponents of Fannie and Freddie that if the government is going to be subsidizing housing, it must do so in a "more focused, on budget, targeted" manner that "focuses on low/moderate-income households."  The rest of the market would be left to the private sector, with banks and private securitizers playing the role now filled by Fannie and Freddie.  While even opponents of Fannie and Freddie admit that mortgage rates would rise under this scenario, one expert on the issue claims that it would only be a "quarter percentage point" higher, and that "[g]rass [would not] grow in the streets of America over a quarter of a percentage point differential." 

What do you think?  Let us know in the comments section whether you believe that the world would be better place without Fannie or Freddie or if they are necessary to a vibrant housing market.

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