Ed Feulner
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Want to improve the housing market? Evict Fannie Mae and Freddie Mac.


Sounds harsh, but without such a serious, drastic step, the market won’t get better anytime soon. The value of household real estate is down an eye-popping $6.6 trillion (that’s 12 zeros, folks) since it peaked in 2007. And the “government sponsored enterprises” (GSEs) known as Fannie and Freddie played a big part in inflating the housing bubble.

 

They carelessly issued mortgage-backed securities with a government guarantee, and then bought more of them as “investments,” thus stoking the fire on an overheated market.

 

Before the housing collapse, Fannie and Freddie controlled much of the nation’s residential mortgage market. Since then, both companies have gone belly up. Only massive infusions of federal funds keep them alive.

Wait, you may ask, didn’t Congress pass a big financial-reform bill last year? Yes, one that began life as a proposal President Obama called a “sweeping overhaul.” But although it ran as long as 1,300 pages, the Dodd-Frank bill overlooked Fannie and Freddie entirely.

 

That doesn’t mean lawmakers were unaware of the Fannie-Freddie problem. “This is a big, massive bill as it is,” Sen. Mark Warner, D-Va., said at the time. “We’ll come back next year and take on Fannie and Freddie in a more thoughtful way.”

 

Well, it’s next year. And there are several legislative proposals out there to deal with Fannie and Freddie. Unfortunately, few are thoughtful.

 

Take the idea of creating dozens of new GSEs, as one bill would do. That would only make matters worse. We’d be setting ourselves up for future bailouts, on top of the ones Fannie and Freddie have already received. We’d be practically guaranteeing the loss of hundreds of billions of dollars in taxpayer money.

 

The outlook isn’t all dim. Both Rep. Jeb Hensarling (R-Texas) and Rep. Scott Garrett (R-N.J.) are working hard to eliminate them, but they need more help. The two GSEs are now in “conservatorship,” with the government acting as their monetary caretaker.

 

What needs to be done, according to financial expert David John, is to move them to formal bankruptcy. Their perpetual charters should be revoked, and replaced with three-year charters that Congress can renew if need be. Their portfolios of mortgage investments can be turned over to a new temporary subsidiary of the Federal Housing Finance Agency for gradual liquidation.

 

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Ed Feulner

Dr. Edwin Feulner is Founder of The Heritage Foundation, a Townhall.com Gold Partner, and co-author of Getting America Right: The True Conservative Values Our Nation Needs Today .
 
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