GOP Pushes for Fannie & Freddie Phase-Out

March 29th, 2011 at 11:28 pm | 15 Comments |

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A coalition of Republican House of Representatives Members has announced a package of bills that would first restrict and then wind down Fannie Mae and and Freddie Mac. The bills and the package of reforms they contain shows how a vigorous, market-oriented House majority can and should actually get things done.  Even if they don’t accomplish their overall goals (and they probably won’t), they’re almost sure to make a positive impact on the nation’s housing package.

The bills, nine by my count, would put a variety of new restrictions on Fannie and Freddie, mandate that they shrink, and five years after passage, rescind their GSE charters thus turning them over entirely to the private market. Although there are plenty of details worth quibbling with—one bill, proffered by Rep. David Schweikert (R-AZ) would more-or-less bar the GSEs from offering new products, something that might make it more difficult for them to move towards a truly private future—the overall plan has a lot to recommend it.

This represents good tactics and good strategy: with a number of different bills, many of them with obvious populist appeal, those that want the GSEs to grow forever will have a hard time saying ‘no’ to every single GOP proposal. Likewise, the overall goal of getting the GSEs’ off of the taxpayers’ backs in a gradual, incremental fashion that doesn’t destroy the still fragile housing market is a practical one. This sort of approach—advancing conservative free market goals in bite-size popular, incremental pieces that Democrats will have a hard time voting against—makes a lot more sense than the passing a one-sentence bill to repeal a sitting President’s key legislative achievement.

That said, Republicans probably won’t succeed in accomplishing the goal of truly ending taxpayer liability for mortgages. Since hardly anyone anywhere offers 30-year fixed-rate self-amortizing mortgages with modest down payments absent a government guarantee, a complete privatization of the mortgage market would more-or-less end the widespread availability of these products. Although there’s no reason to believe that anything particularly bad would happen in a world without 30-year mortgages, banks, consumer groups and many members of Congress will put up fierce resistance to efforts to do away with them. Even if Republicans don’t succeed entirely (and, frankly, it’s possible that many of the people proposing the individual bills don’t favor ending 30 year mortgages and the guarantee they require) their reform package is, strategically and tactically, a very good start.


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15 Comments so far ↓

  • Bunker555

    You need to get an editor. Do you get paid per keystroke?

    This represents good tactics and good strategy: with a number of different bills

    their reform package is, strategically and tactically, a very good start

  • COProgressive

    “rescind their GSE charters thus turning them over entirely to the private market.”

    (Laughter…….)

    Like the private market has done wonders with selling and securitizing home mortgage products.

    Sounds like the GOPpers have forgotten 2005-2008.

    But home prices ALWAYS go up!

  • hisgirlfriday

    Although there’s no reason to believe that anything particularly bad would happen in a world without 30-year mortgages, banks, consumer groups and many members of Congress will put up fierce resistance to efforts to do away with them.

    Nothing particularly bad would happen in a world without 30-year mortgages? Do you think the rise of subprime mortgages was actually good for America and the economy?!?! What planet are you living on?

    For the mortgage securities bond market to work again, if ever, it needs the 30-year fixed rate mortgages to happen. Securitized subprime and option ARM exotic mortgages with ridiculous teaser rates to disguise ultimate costs to consumers and disguise ultimate liabilities to the entities holding the paper of these loans is precisely what blew up the market in 2007-08 when people started defaulting on the loans held in bonds by the banks and the crazy default swap market allowed a bunch of speculators to short those bonds and break the banks. (Obviously “The Big Short” explains this much better than I can)

    But let’s be clear, the housing market didn’t crash and mortgages were not going bad because they were 30-year fixed rate mortgages backed by government paper.

    Now Mr. Lehrer, if in tandem with winding down Fannie and Freddie you are someone who wants to see the return of Glass-Steagall and you would like to see the current intermingling of actual banking activity on Main Street and the casino investment banking practiced on Wall Street end such that the mortgage securitization bond market is completely shut down and we can go back to the banking system we had before this housing market bubble started building up in the mid-1980s, well that sounds good to me.

    Maybe then the banks would be forced to actually put in the effort to make smart loans to pull down a profit so our markets were a lot more efficient than this messed up crony capitalism we have now where the banks best bet for making profits is by purchasing our politicians.

    • COProgressive

      The banks and thrifts can do more than show effort, they can hold the mortgages as an asset on THEIR books instead of selling the mortgages to an investment bank where they were bundled into RMBS’s and then rolled into CDO’s and sold as AAA rated grade bonds to suckers around the world.

      Good clean money came into the market from investors and was skimmed off at the top, while the “crappy” mortgages were sold to anyone who could fog a mirror and the RISK of these mortgages pushed out to investors under the guise of a AAA rating.

      BTW, the rating agencies had a huge role in the meltdown.

      The underlying problem through this whole mess comes down to a single word, “GREED”.

      What makes anyone believe this won’t happen again.

  • Houndentenor

    Nothing particularly bad would happen? Well, I suppose not if your idea of a healthy society is one in which half the country can never afford to buy a home.

    It should also be noted that adjustable rate mortgages are making a comeback. People are once again finding it hard to get a fixed rate since banks are well aware that interest rates are going to go up.

  • ottovbvs

    Even if they don’t accomplish their overall goals (and they probably won’t),

    Er…no they won’t. It’s a non starter because if it was enacted the entire housing market would collapse. I’d like to see these Republican dimwits explain this to their local chamber and realtor’s association.

    (and, frankly, it’s possible that many of the people proposing the individual bills don’t favor ending 30 year mortgages and the guarantee they require) their reform package is, strategically and tactically, a very good start.

    In other words says Eli, these people don’t have the faintest idea of what they’re doing but it’s a good idea anyway. Governance Republican style. Legislators proposing legislation they don’t understand and would be shocked at the consequences if it happened.

  • armstp

    “….they’re almost sure to make a positive impact on the nation’s housing package.”

    Are you sure this would be positive?

    “…market-oriented House majority…”

    Just to remind you Eli. Both Fannie and Freddie were private companies and were extremely “market-oriented”. In fact, if anything too market oriented. They should had some better rules on some of their lending, although they did not drive subprime. Fannie and Freddie were actually more vicitims of the housing crisis.

    “…market-oriented House majority can and should actually get things done. Even if they don’t accomplish their overall goals (and they probably won’t)… ”

    Can you contradict yourself any more? You say in the first sentence that they can get things done and then in the very next sentence you say they will get nothing done. That just does not make any sense. I will be surprised if this House gets anything done. We have a bunch of unserious Republicans who are incapable of rolling up their sleeves and doing the hard work of actually governing. They are just a bunch of show horses, who pretty much got their for purely political reasons and not because of their ideas.

    The main goals here are not much different than what Obama is proposing.

    “Last month, the Obama administration called for eventually phasing out the mortgage giants, releasing a “white paper” that contained some elements of the GOP proposals. It provided three options for what might take their place, each with varying levels of government involvement. Officials said the process of making a transition to a new system could take five years.

    The first option would provide no loan guarantees to protect mortgage investors beyond those made by existing agencies such as the Federal Housing Administration. The second option would create some type of government backstop that would kick in only during market emergencies.

    The third would create new federal loan guarantees to replace some of the roles played by Fannie and Freddie. Housing interests and consumer groups are pushing for continued federal support, and a key trade group for home builders strongly criticized the Republican legislation.”

    By the way Eli, a simple question for you: What exact problem are they attempting to solve?

  • sublime33

    It was great sport to demonize Fannie and Freddie so they could blame the housing crisis on (cue the dog whistle) affirmative action. But I seriously doubt that many homeowners over 50 years old would support eliminating these agencies if they understood that it will likely make it more difficult for them to sell their home upon retirement at the maximum price to a buyer with adequate financing.

  • unclereggie

    Republicans are going after Fannie Mae and Freddie Mac because they see only one angle of the picture. They believe those two programs are wasting government money. What they don’t see is that without Fannie Mae and Freddie Mac, we would witness the greatest housing price crash in world history. The very fact that those two entities are guaranteeing mortgages is the concrete foundation under the nation’s housing market. Without those guarantee’s housing prices would end up at about 10% of what they are now. There would be a 90% drop in housing prices immediately. Without an entitiy to guarantee mortgages, absolutely no one would pay 175,000- 250,000 of their own personal dollars for a house that has no foundation under the mortgage.

  • sublime33

    “Republicans are going after Fannie Mae and Freddie Mac because they see only one angle of the picture.”

    They also make a scapegoat that fits their storyline much better. Placing blame on Moody’s, AIG and the other major players gets their fans mad at the financial players that contribute to their political funds. Blaming Fannie and Freddie fuels the “here is another case where affirmative action is costing us taxpayers” argument.

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