Out of Control Policy Blog

Privatize Fannie and Freddie?

In light of the massive Fannie Mae accounting scandal (which makes Enron look like small 'taters), the Christian Science Monitor calls for the privatization of both Fannie Mae and Freddie Mac:

    "...Fan and Fred long have expanded beyond their original mission, set after the Great Depression, which was to help poorer Americans buy homes. To their own credit, they have shown other banks that low-income families aren't necessarily bad credit risks. It's time for both companies to get on a level playing field with the banks as private institutions serving their stockholders alone.

    They should no longer cling to an outgrown public mission with its attendant government perks - a mission that indeed works at cross-purposes with serving the shareholder's bottom line. Federal Reserve chair Alan Greenspan has said Fannie and Freddie present a "systemic risk" to the nation's finance system, and has called for their privatization.

    Credible studies show that Fannie and Freddie aren't buying as many mortgages of low-income borrowers as even banks are making. Peter Wallison of the American Enterprise Institute maintains "banks are making more mortgage loans to low income and minority borrowers than Fannie and Freddie have been willing to buy from them." A study done for the Department of Housing and Urban Development by Richard Williams, a professor at Notre Dame, corroborates Mr. Wallison's claim, saying Fannie and Freddie "...do not purchase relatively more underserved [low-income] market loans than the primary market makes" - pretty clear evidence that their mission of helping the poor has largely been met by the private market."

Leonard Gilroy is Director of Government Reform


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