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Fannie and Freddie Must Die

For reforming housing finance, there remain more questions than answers — a fact highlighted at yesterday’s “Future of Housing Finance” conference at the Treasury Department. But policymakers in Washington seem to agree on one thing: There will be no more Fannie Mae and Freddie Mac, at least not in anything resembling their current iteration. The two government-sponsored enterprises’ functions will be reviewed and reformed, likely into different agencies.

JoAnne Allen at Reuters reports that Rep. Barney Frank (D-Mass.), one of the key players working on housing reform, argues blankly that the two should die:

“They should be abolished,” Frank said in an interview on Fox Business, when asked whether the mortgage giants should be elements in housing market reform. “They only question is what do you put in their place,” Frank said.

The Federal Housing Administration should be fully self-financing and Freddie and Fannie should be replaced with a new mechanism to help subsidize housing, Frank said in the interview.

“There is no more hybrid private-public,” the Massachusetts Democrat suggested. “If we want to subsidize housing then we could do it upfront and let the budget be clear about that.”

Fannie Mae and Freddie Mac were government-sponsored enterprises, privately owned companies supported by the government, until the Bush administration took control of the companies in 2008 to save them from collapse.

Frank said that he does believe the federal government should have a role in building affordable rental housing but thinks money should go toward projects by private developers.

On the question of whether the government should still provide some guarantees in the mortgage market, Frank said: “If we have it (guarantees), it has to be self-financed by the people who are benefiting.”

Essentially, Frank argues that the government needs to clarify the government’s housing goals and better arrange funding flows to meet them. This is a point Timothy Geithner, the Treasury secretary, made yesterday, as well.

Matthew Yglesias does a good job of describing the problem: Before, Fannie and Freddie was encouraging people to buy more expensive houses, subsidizing all kinds of mortgages, competing with private companies, and taking on certain low-income housing goals. Their tasks became muddled, in part because their mission was muddled, as profit-seeking entities with a government mission and government backing.

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