Opinion
Back to the Future: Time to Privatize the Mortgage-Finance System
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Keeping Fannie and Freddie in business, or replacing them with clones, means that the government — which really means taxpayers — will continue to be subsidizing mortgage borrowing and to be exposed to the risk of having to bail out these entities once again.
By Lawrence White
It is now more than five years since Fannie Mae and Freddie Mac were ignominiously put into conservatorships and became wards of the U.S. government — at a cost of $188 billion. They have continued to function during these five-plus years, and have even become profitable again. But it is long past time to give them a decent burial — and also to make sure that clones don't spring up to replace them.
Mortgage finance used to be largely the business of private markets. But Fannie and Freddie's expansion as mortgage investors and securitizers in the 1990s and the first half of the 2000s — and then their spectacular collapse in 2008 — has brought heavy government involvement into the mortgage markets. Recent proposals to "reform" mortgage finance would keep that extensive involvement. This would be a costly policy mistake.
For the past two decades, the process of mortgage securitization — whereby hundreds of mortgages are bundled into securities, which are sold to investors — has revolutionized mortgage finance. No longer are the corner bank or savings institution (and, really, their depositors) the only sources of finance for a home buyer who needs a mortgage. And Fannie and Freddie, with lots of help from the government, were at the forefront of that revolution.
Read full article as published by CNBC
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Lawrence White is the Robert Kavesh Professorship in Economics and the Deputy Chair, Economics.
Mortgage finance used to be largely the business of private markets. But Fannie and Freddie's expansion as mortgage investors and securitizers in the 1990s and the first half of the 2000s — and then their spectacular collapse in 2008 — has brought heavy government involvement into the mortgage markets. Recent proposals to "reform" mortgage finance would keep that extensive involvement. This would be a costly policy mistake.
For the past two decades, the process of mortgage securitization — whereby hundreds of mortgages are bundled into securities, which are sold to investors — has revolutionized mortgage finance. No longer are the corner bank or savings institution (and, really, their depositors) the only sources of finance for a home buyer who needs a mortgage. And Fannie and Freddie, with lots of help from the government, were at the forefront of that revolution.
Read full article as published by CNBC
___
Lawrence White is the Robert Kavesh Professorship in Economics and the Deputy Chair, Economics.