Senate punts on Fannie and Freddie

Wed, 05/12/2010 - 12:17 EDT - Ezra Klein - Washington Post

Comments

I was sympathetic to John McCain's plan to eliminate Fannie Mae and Freddie Mac, but Annie Lowrey made a pretty compelling case that it was a terrible idea. But it was a terrible idea for a weird reason: It got rid of a bad idea too fast.

Fannie Mae and Freddie Mac are what happens when ideological compromise goes horribly wrong. On the one hand, they're supposed to make housing more affordable. On the other hand, they're private companies, because you wouldn't want some sclerotic government agency at the center of this. The result? Profit-maximizing corporations that enjoy the government's backing. That means the debt markets treat them as almost riskless, as the government will clean up their messes, and so Fannie and Freddie can borrow money cheap. But then they take a bunch of risks in order to juice shareholder returns. It's everything you don't like about the private sector combined with everything you don't like about the public sector.

The problem, however, is that the housing market depends on them. In the first three months of the year, Fannie and Freddie backed up 97 out of 100 mortgages. You remove them -- or even suggest to the market that you may remove them in the future -- and the housing sector will nosedive. Faced with this, the Senate punted: They rejected John McCain's plan but approved an amendment from Chris Dodd directing the Treasury Department to study the issue and figure something out.

But what are they expecting Treasury to do, exactly? It's not that we can't reform Fannie and Freddie. It's that the Senate can't vote for any serious reform of Fannie and Freddie, any more than it could vote for an end to the mortgage interest tax deduction.

Fannie Mae - Freddie Mac - John McCain - Senate - United States

Original article
Login or register to post comments

How Fannie Mae made its profit
Mortgage buyer and insurer Fannie Mae was in the news again this week.
Fannie Mae’s $59bn dividend lifts hopes of US taxpayer profit
US mortgage group Fannie Mae, which after the financial crisis received a government bailout, will pay $59.4 billion in pay outs to the US Treasury. The move brought expectations that taxpayers will be actually able to receive dividends from their loan.
Fannie/Freddie Reform Down The Road
Fannie Mae and Freddie Mac didn’t in any sense “cause” the financial panic. They did, however, end up costing the taxpayer a nice chunk of change. Jordan Fabian reports that Chris Dodd agrees they should be reformed and says he only left them out of his big regulatory bill because he thought it would be biting off more than he could chew. He promises a second bill dealing with this will come later.
Explaining FinReg: Fannie and Freddie
The right way to think about Fannie Mae and Freddie Mac is to think about the widespread availability -- at least before the crisis -- of 30-year, fixed-rate mortgages with no prepayment penalty. That is not a financial product that flourishes in the state of nature, and for obvious reasons. If you're a bank, why do you want those mortgages? If interest rates go down, people refinance and pay the loan back early. If they go up, you might be losing money on the loan. It's heads they win, tails you lose.
Fannie Mae to pay $59.4bn back to US taxpayer and forestall debt battle
Agency Mortgage REITs Likely To Benefit From Treasury's Modifying Fannie, Freddie Backing Terms
By Zvi Bar:On Friday, August 17, the United States Treasury Department announced that it is changing the terms of its financial backing for Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB).
Bank of America Clash with Fannie Mae Intensifies; Insurance Disputes Put Taxpayers On the Hook For Still More Losses
Taxpayers are already on the hook for $180 billion in losses at Fannie Mae and Freddie Mac. That number is going to rise, perhaps significantly. The clever synonym for more taxpayer losses is "treasury Advance". With that understanding, please consider Fannie Mae's Losses Narrow but Treasury Advance Requested.
US unveils housing market overhaul
The US Treasury Department proposed Friday to wind down state-backed mortgage lenders Fannie Mae and Freddie Mac, which have underpinned the housing market for 40 years."The plan is for fundamental reform, to wind down the GSEs (government-sponsored enterprises), strengthen consumer protection and preserve access to affordable housing for the people who need it."
Clinton and the housing boom
Last week, I asked Dylan Matthews to pull together a graph tracking rates of homeownership against policies designed to increase homeownership. The result was surprising: Neither Fannie Mae, Freddie Mac, the Community Reinvestment Act, nor the tax reforms that created the mortgage-interest deduction showed a large, obvious effect. See for yourself:

Main menu

Secondary menu

Senate punts on Fannie and Freddie

Related

Latest

User login

Our Blog

Markets Map

Follow Us

Secondary menu