Climate is right for fixing Fannie Mae & Freddie Mac
By Charles Lane
Published: Saturday, Jan. 12, 2013, 8:56 p.m.
Congress and the Obama administration have their hands full with the debt ceiling, the threat of budget “sequester” and the related battle over how much to raise taxes and cut entitlement spending. Even so, are they ever going to get around to fixing Fannie Mae and Freddie Mac?
The ultimate fate of these two giant government-sponsored enterprises, which back or guarantee most home mortgages in America, might be as important to the economy as the federal debt.
Yet their future has been unsettled since September 2008, when their regulator, the Federal Housing Finance Agency, seized control of them and declared them unable to withstand the housing market crash without an infusion of taxpayer dollars. And that infusion has been a massive $187.5 billion.
As intended, the bailout, or “conservatorship,” as it's formally known, prevented a collapse that could have reverberated around the world, where investors — including the central banks of China, Japan and other major nations — hold hundreds of billions of dollars worth of related securities.
But even though it has lasted 52 months (and counting), FHFA's conservatorship was never meant to be permanent.
As long as they're in limbo, a strategy can't be planned, and their employee morale will suffer. Above all, the housing market will remain too uncertain for the kind of private-sector commitments upon which housing's full recovery depends.
To its credit, the Obama administration has identified the “structural design flaws, combined with failures in management,” as “the primary cause of their collapse” — as a Treasury Department report put it in 2011. The administration argued that reform should avoid re-creating such public-private conflict.
Yet while the administration outlined several reform options, it did not push for any of them. (Republicans have floated plans with equal futility.) Meanwhile, the administration pressured FHFA to manipulate the agencies' finances in favor of underwater homeowners — ostensibly to free up cash for consumer spending and short-term economic growth.
Edward DeMarco, acting director of the FHFA, justifiably resisted using the agencies yet again as an off-budget cash cow. His reward was extravagant vilification from “progressives,” who began an election-year Internet campaign blaming him for the sour economy and demanding his firing.
Fannie and Freddie are shrinking, gradually, as well as stabilizing.
With administration support, they raised fees to securitize loans, and DeMarco recently agreed with Treasury on modifications to the bailout that will help slim them even faster.
But the time is ripe for a conclusive fix.
Despite the partisan wrangling and interest-group lobbying — not to mention legitimate policy disagreements — basic principles of a new mortgage finance system are widely agreed upon. There should be no more confusion of public mission and private profit; government support, if any, should be transparent and limited to the truly needy.
The American dream of home-ownership is a good thing. Alas, we've been trying to have too much of it.
Charles Lane is a member of The Washington Post editorial board.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Garden Q&A: Firecracker vine OK for trellis?
- Starkey: Penguins’ arrogance astounding
- Matt Calvert’s goal in double OT evens series for Blue Jackets
- NFL notebook: Pryor will be cut if he’s not traded
- Penguins’ Gibbons scores twice but leaves with apparent injury
- Patients denied as donor organs discarded
- North Versailles, Murrysville families still waiting for report on 2011 chopper crash that killed couple
- Film tax credits bill would bump up state budget
- Draftees’ longevity key for NFL success
- Bunting has become baseball’s forgotten weapon
- Pair of Braun homers spells defeat for Pirates