GOP Pushes for Fannie & Freddie Phase-Out

by Matthew Glans on April 6, 2011

Years of mismanagement and poor decisions have taken their toll on the beleaguered government-sponsored enterprises Fannie Mae and Freddie Mac. Since the takeover of Freddie and Fannie by the federal government, taxpayers have spent more than $150 billion keeping the institutions afloat. According to the Congressional budget office, $400 billion in tax dollars eventually will be needed to cover the potential losses on the trillions of dollars’ worth of mortgage-backed securities they own or guarantee.

There is currently no limit on how much Fannie and Freddie is allowed to request from the Treasury Department or how often they’re allowed to go hat-in-hand. When the taxpayer guarantees provided through Fannie Mae, Freddie Mac, the Federal Housing Administration, and Ginnie Mae are taken as a whole, nearly nine of every 10 new mortgages in America now carry a federal taxpayer guarantee. These new liabilities are equal to $3,800 for every American citizen.

The financial condition of both Freddie and Fannie has continued to deteriorate over the past year. This has led many legislators on both sides of the aisle in Congress to promote either significant reform or the complete phase out of Freddie and Fannie.

In a recent Frum Forum article, Eli Lehrer, Vice President of DC Operations at The Heartland Institute discusses Republican efforts to reform and gradually phase out Freddie and Fannie. While Lehrer concedes that eliminating Freddie and Fannie will be difficult, he likes the direction some members of Congress are taking to address the problems with Freddie and Fannie.

“That said, Republicans probably won’t succeed in accomplishing the goal of truly ending taxpayer liability for mortgages. Since hardly anyone anywhere offers 30-year fixed-rate self-amortizing mortgages with modest down payments absent a government guarantee, a complete privatization of the mortgage market would more-or-less end the widespread availability of these products. Although there’s no reason to believe that anything particularly bad would happen in a world without 30-year mortgages, banks, consumer groups and many members of Congress will put up fierce resistance to efforts to do away with them. Even if Republicans don’t succeed entirely (and, frankly, it’s possible that many of the people proposing the individual bills don’t favor ending 30 year mortgages and the guarantee they require) their reform package is, strategically and tactically, a very good start.”

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