Fannie Mae and Freddie Mac: Creatures of Regulatory Privilege

As part of its response to the ongoing credit crisis, the federal government placed Fannie Mae and Freddie Mac, the government-chartered, privately owned mortgage finance companies, in conservatorship. These two massive companies are profit-driven, but as government-sponsored enterprises (GSEs) they also have a government-mandated mission to provide liquidity and stability to the United States mortgage market and to achieve certain affordable housing goals. How the two companies should exit their conservatorship is of key importance to the future of federal housing finance policy. Indeed, this question is of pressing importance as the Obama Administration has signaled that it would rely heavily on Fannie and Freddie as part of the short-term response to the foreclosure epidemic that has swept across America in the last couple of years. Once the acute crisis is dealt with, however, the Administration will need to put American housing finance policy on the right track for the long-term health of the system. This will require a framework for analyzing the needs of that system, a framework that this chapter provides.