Tuesday, November 08, 2011

How to fix Fannie and Freddie

Source: Politico

Three years and $141 billion of taxpayer money later, the first financial institutions to be rescued by the federal government, Fannie Mae and Freddie Mac, remain in conservatorship under the Federal Housing Finance Agency. The uncertain resolution of these government-controlled goliaths, which still dominate what is left of the mortgage finance business, is keeping most private sources of capital at bay.

The FHFA acting director, Ed DeMarco, has a statutory duty “to conserve the assets” of the two entities. He is not a housing czar empowered to reform a broken market. Nor can he provide backdoor fiscal stimulus by sanctioning outright principal reductions on underwater mortgages, if these reductions would create greater losses to Fannie and Freddie.

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