End Fannie and Freddie Now, for Taxpayers’ Sake
Fannie Mae and Freddie Mac, the two failed mortgage finance giants that are now kept afloat by taxpayers, have been the bane of the housing market in Americafor long enough. Heritage’s David C. John suggests that instead of considering a refinancing bill by Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA), which Senate Majority Leader Harry Reid (D-NV) is expected to schedule for Senate consideration in the lame-duck session, lawmakers should get rid of Fannie and Freddie entirely.
This can’t be done soon enough.
John explains that rather than allowing for mass refinancing of underwater mortgages, which housing activists have called for and which has helped a relatively small number of borrowers in the past, it would be best to allow the market to recover and home prices to rise again gradually.
Although housing is “not yet completely out of the woods,” the “share of home sales that involved short sales or foreclosure continues to drop.”
The Menendez—Boxer solution, John contends, is no solution at all since Fannie and Freddie would be “stuck with more losses.” The legislation is flawed and would “exempt lenders from taking back poor-quality defaulting loans.” When that happens, “loans of just about any quality could be refinanced, and Fannie Mae and Freddie Mac—and the taxpayers—would end up eating the cost of any defaults.”
This is unacceptable. Heritage Action has opposed gimmicks that prop up and expand Fannie and Freddie before, and we oppose legislation meant to keep these failures on life support from taxpayers.
Heritage has suggested a much better alternative to these government-sponsored enterprises and laid out the necessary steps to be taken. The housing sector is already beginning to improve, and this legislation would just hinder a positive trend. Instead of banging its head against a wall again, Congress needs to “focus on creating a modern housing finance system that would enable a healthy housing industry.”