Parts of the housing and mortgage finance industry fear that eliminating the two GSEs could crimp that market's slow recovery, but they are reacting to the past few years and not looking towards the future.
The Obama administration should propose clear and unambiguous steps that will phase out the role of both organizations in the mortgage finance markets while also gradually selling off their portfolios of mortgage securities.īy the time that Fannie Mae and Freddie Mac should completely disappear in several years time, the housing market should be fully recovered from the 2008 crash. Over time, the private sector is more than capable of taking over their securitization functions without causing major disruptions to the housing market or delaying its recovery. Today, the two GSEs control about 90 percent of the mortgage-backed securities market, and this must not become a permanent situation.
Nothing short of Fannie Mae and Freddie Mac's complete elimination will enable a healthy housing market to reappear. Efforts to reform or refine their roles are misguided at best. The activities of the two government-sponsored enterprises (GSEs) played a major role in the 2008 financial crash and have so far cost taxpayers over $150 billion to cover their losses more is yet to come.
The era of Fannie Mae and Freddie Mac is over, and it is time to formally close them down.
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