Commentary

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.

Samuel R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.