Fannie and Freddie May Need Another Taxpayer Bailout

According to the latest Fannie Mae and Freddie Mac stress test, these Government Sponsored Enterprise (GSE) giants could need a taxpayer bailout of as much as $126 billion during a future potential economic crisis.

The stress test, mandated by the Dodd-Frank Act and conducted by the Federal Housing Finance Agency (FHFA), represents another reason why Congress should address this issue sooner rather than later. In fact, Congress should have ended the practice of propping up private mortgage companies in the name of expanding homeownership after the economic crisis in 2008.

Instead, Congress used taxpayer dollars to bail out Fannie and Freddie and sent them into conservatorship. Since 2012, the Treasury and FHFA require Fannie and Freddie to send all their income back to the Treasury outside of some income generated through business operations to be used as a capital buffer.

Some political actors may use the results of this stress test as an excuse to remove Fannie and Freddie from conservatorship. However, the correct response should be to end GSEs in the mortgage industry once and for all. Federal government efforts to expand homeownership have not been successful, the U.S. homeownership rate is at an all-time low, and was mainly responsible for the unsustainable housing boom and subsequent collapse in the lead up to the economic crisis in 2008. Housing market stability requires less federal intervention, rather than repeating the same mistakes of the past.

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