The Free Press, Mankato, MN

Editorials

August 9, 2013

Cut loose Freddie, Fannie

Why it matters: Taxpayer risk is too high with current mortgage lenders

Bipartisan plans moving through Congress to stabilize the housing market and reduce taxpayer risk in the mortgage market are a step in the right direction.

A Senate bipartisan plan as well as a more partisan GOP plan moving through the House would wind down the business of and eventually eliminate Fannie Mae and Freddie Mac, the quasi-government mortgage lenders that exploded in the financial crisis of 2008.

Freddie and Fannie had a great deal while it lasted. The public took the risk for private gain. As the entities owned or were behind nearly 90 percent of mortgages in the country, they melted down with the housing bubble of 2008 and had to be bailed out by taxpayers to a tune of $187 billion, the biggest of all bailouts.

The mostly privately-owned entities provided bonuses to CEOs all the while the government and taxpayers were backing their bad bets. The entities have since paid back about $132 billion of taxpayer funds, but there have been universal calls to eliminate them and transition their business to other agencies.

President Barack Obama said Tuesday that he supported the bipartisan Senate plan authored by Sen. Bob Corker, R-Tenn., and Sen. Mark Warner, D-Va., that, according to Warner, would get rid of the model of “private gains and public losses.”

Their plan would phase out the agencies over five years and replace them with a new agency like the Federal Deposit Insurance Corp., the agency that insures bank deposits. The new agency would be funded by industry fees and have a much smaller role in backing mortgages. Their plan also aims to create a system of some government guarantees where the 30-year fixed rate mortgage would still be a large part of the mortgage market.

Obama has endorsed this approach saying owning a home is still part of the American Dream for the middle class.

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