Fannie and Freddie follies

» Discuss Article    (6 Comments)

Nevertheless, Congress hasn't changed Fannie's and Freddie's status. They remain privately held companies, albeit with stocks that sell for less than $1 a share, and are barred from paying dividends while federal regulators are in charge. When the conservatorship ends, Fannie and Freddie will be under private control once more, and their operations will be aided again by the expectation of a federal rescue. After all, if the feds bailed them out once, won't they do it again? The main difference is that the two companies' mortgage-related holdings will be significantly larger -- as much as $1.7 trillion more than when the feds stepped in. That's because the Treasury has pushed Fannie and Freddie to increase their shares of the housing finance market to offset cutbacks by private sources.

The credit crisis makes it difficult today, yet lawmakers and the incoming administration need to start working soon on a whole new approach to Fannie and Freddie. In particular, they should explore ways to phase out both companies, allowing truly private firms to take over the secondary market for mortgages that Fannie helped create decades ago. As for Fannie's and Freddie's mission to promote affordable housing, there are much more efficient and transparent ways for the government to achieve such goals -- for example, by providing subsidies directly through federal agencies instead of siphoning dollars from Fannie and Freddie. The collapse of Fannie and Freddie calls into question the government's role in the American dream of home ownership. Washington needs to start looking for answers now, before taxpayers relive the Fannie-Freddie nightmare.