Thursday, June 27, 2013

The Future of Fannieand Freddie

New York Times columnist and former business writer Joe Nocera has a column about a bipartisan effort in the US Senate to dismantle Fannie Mae and Freddie Mac which together guarantee 77% of the mortgages in America today.  Nocera explains that the dual nature of these two entities - they are both publicly traded companies that have a strong govenment proponent - has been part of their problem.  He also points out that the new bill does not eliminate government involvement in the mortgage business.  Instead, it replaces the quasi-governmental companies with an express government guarantee of loan losses beyond the first 10%.  The sponsors of this bill, Senator Mark Warner, a Virginia Democrat, and Senator Bob Corker, a Republican from Tennessee, contend that government guarantees are essential to the operation of the home mortgage market and it was best to provide that support in a straightforward, transparent way.  Nocera, however, raises the awkward question of whether the federal government should be subsidizing home ownership in the first place and suggests that rather than trying to replace Fannie and Freddie, the country first needs a discussion on whether our national policy should promote homeownership by everyone.

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