Mar 132017

Swagel-Phillip-HRWorking Paper: Privatize Fannie and Freddie, yes. But be pragmatic.

by Phillip Swagel, CFP Academic Thought Leader and Senior Policy Advisor, Susan Gates and Ann Schnare

It is a hopeful sign that Treasury Secretary Steven Mnuchin has raised privatization of Fannie Mae and Freddie Mac as an early order of business for the new administration.  The red ink that poured out of the two companies during the financial crisis has long stopped flowing, but Fannie and Freddie remain in the government-controlled limbo of conservatorship they entered in September 2008.  This leaves a situation in which government domination of the housing finance system puts taxpayers on the hook in the event of serious problems, even while many families find it difficult to obtain a mortgage.  With the two government-sponsored enterprises (GSEs) still the linchpins of the mortgage system, taxpayer money surely would be used to prop them up again in the event of a future housing downturn.  Hence, it is understandable that Mr. Mnuchin would like to privatize the entities as soon as possible, both to reduce taxpayer risk and to improve the effectiveness of the mortgage system at ensuring access to financing for families looking to buy homes.

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