Barney Frank Calls for Elimination of Fannie Mae and Freddie Mac

In an interesting twist of events, Barney Frank (D-Mass) is calling for the abolition of Fannie Mae and Freddie Mac, the government sponsored (and now owned) mortgage lending guarantee authorities that played a big part in creating the Housing Bubble. According to Bloomberg News:

Representative Barney Frank, whose committee oversees Fannie Mae and Freddie Mac, said he will push to do away with the companies in favor of a different model for U.S. mortgage financing.

“The committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance,” Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said at a hearing in Washington today. “That’s the approach, rather than a piecemeal one.”

Frank wants to start all over with a new financing framework for the housing market. What that will be is hard to tell.

The problem with Fannie Mae and Freddie Mac was political, not economic. As quasi-government organizations, they were were forced to choose between the political goal of subsidizing home ownership and financial lending prudence. It’s unclear how these tensions can be resolved within a highly regulated government housing finance framework.