Obama’s Plan: Fannie Mae and Freddie Mac Go, but What Replaces Them?
Given the task of producing a plan to develop a new housing finance system after the crisis of 2008 and the failure of both Fannie Mae and Freddie Mac—a task that everyone agrees will be extremely complex—the Obama Administration decided to punt. Rather than one detailed plan, it produced brief summaries of three very different ones, leaving the nation to wonder what the Administration really wants.
The report clearly supports ending both Fannie and Freddie, but what happens next is very unclear. The three proposals for the future after Fannie and Freddie deal with the role of the federal government in providing housing finance. Of them, the first essentially calls for no role at all, leaving the matter in the hands of the private sector. This is clearly the best proposal of the three. In their words, it “would minimize distortions in capital allocation across sectors, reduce moral hazard in mortgage lending and drastically reduce direct taxpayer exposure to private lenders’ losses” (page 28).