• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Two Promising Starts towards Ending Fannie Mae and Freddie Mac


    After more than a year of delay, the House Financial Services Committee is finally starting work on legislation that will hopefully end Fannie Mae and Freddie Mac, the two housing finance giants that helped to make the housing crisis worse.

    Both essentially failed in September 2008 and have been in a conservatorship under control of the Federal Housing Finance Agency since then. Many had hoped that Congress would address these two entities at the same time that it overhauled the financial regulatory system in the onerous Dodd–Frank legislation. But that did not happen.

    The House will consider two approaches to dealing with Fannie Mae and Freddie Mac. They include a single comprehensive bill by Rep. Jeb Hensarling (R-TX) that would shrink Fannie Mae and Freddie Mac and a reported package of eight separate bills sponsored by Rep. Scott Garrett (R-NJ) that would accomplish approximately the same thing.

    Both approaches are important moves in the right direction and would make it less likely that taxpayers would have to finance another bailout of the two entities. In addition, both would replace quasi-governmental interference in housing finance with private-sector companies that would be free of government subsidies and attempts to use them to achieve social goals.

    Hensarling and Garrett both propose significant steps that would gradually shrink Fannie Mae and Freddie Mac while encouraging the private sector to return to housing finance. The gradual approach is important since the housing market is still very weak, with about 90 percent of all mortgages still being financed through Fannie Mae and Freddie Mac. While their eventual elimination is essential, a too-rapid closure would further disrupt an already unsettled market.

    Hensarling’s GSE Bailout Elimination and Taxpayer Protection Act, HR 1182, co-sponsored by Financial Services Committee Chairman Spencer Bacchus (R-AL), would place a two-year limit on the current conservatorship and end the various affordable housing mandates that Congress imposed upon Fannie Mae and Freddie Mac. It would also place a $700 billion cap on the size of their portfolios and shrink them to $250 billion each over the next five years. Private-sector competitors would be encouraged to re-enter the market by reducing the maximum mortgage size that Fannie Mae and Freddie Mac could purchase and repackage into mortgage-backed securities and by gradually increasing the guarantee fee charged by them. Increasing the guarantee fee, which protects buyers of bonds created by packaged mortgages if the homebuyer defaults on the loan, will force Fannie and Freddie to compete on a more level playing field with private-sector financing.

    Garrett’s reported package of eight bills takes many of the same steps to phase out Fannie Mae and Freddie Mac and to encourage private competitors. It also increases the guarantee fees and requires both to reduce the size of their portfolios to no more than $250 billion over five years. It would also eliminate affordable housing goals and prohibit both from entering new lending markets. In addition, Garrett’s package tightens existing restrictions on both entities by strengthening federal oversight and reduces pay at both entities to the same level as federal employees. Both Fannie Mae and Freddie Mac have been well known for their generous pay levels.

    A key problem with both approaches is that neither guarantees the end of Fannie Mae and Freddie Mac. This is likely to be the end result of both, and the Hensarling bill does allow for both to go into receivership (a formal seizure of both entities that would be followed by a resolution process, which could include liquidation if they cannot be proven to be viable going forward). But neither formally breaks up the remains and closes or sells them to private-sector competitors. While both steps would shrink Fannie Mae and Freddie Mac, Congress should ensure that taxpayers don’t end up paying for another huge bailout by also formally and permanently ending both entities.

    Posted in Economics [slideshow_deploy]

    13 Responses to Two Promising Starts towards Ending Fannie Mae and Freddie Mac

    1. Zack says:

      As much as I want to believe in free market, sometimes this is the kind of mess that free market creates. Corporate American greed will not get a free pass. Government is not always the answer either. The government has and will continue to make mistakes but the housing crisis aint one of them.

      This is the typical american (take what profit you can, screw everyone else and run) idea that happened here, nothing else. Government programs regulating lenders to make small loans available to lenders that would otherwise not reach out to them is the least of the problem. Drop Heritage and do some real research.

    2. Zack says:

      so, you decided to not post factual data? how embarrasing for you Conn…..

    3. Andrew, VA says:

      I find it interesting that Heritage is against Freddie & Fannie. These are programs that, properly run, have helped millions buy homes for decades.

      In other words, they allow more people to own private property. Isn't private property a cornerstone toward the free society that Heritage has advocated for decades?

      Perhaps, like welfare or Social Security, serious reforms are better than removal here? Heritage has offered good proposals for changing welfare and Social Security, why not Fannie & Freddie?

    4. West Texan says:

      Just like the indiscriminate use of antibiotics disrupts the body's normal flora leading to pathogenesis, the infusion of tax payer dollars into free markets drives stable investments into a feeding frenzy. Such is the case with Fannie and Freddie. Go ahead and blame corporate America for causing today's economic woes. Just remember who promoted it all. Did I hear Barney Frank speak among the delusional elite? You betcha!

    5. Bobbie says:

      Get government out of housing. Individuals have to be responsible for their own finances and held accountable to their mistakes in this country of freedom! If I were them, I'd sue whoever from the democrat party set them up. NOT TAX PAYERS! The democrats have been misguiding people for years, into government dependency. Playing race and class warfare!? That's not humanitarian! It's worse than pathetic!

      The people need to understand, democrats exceed the limits of their duty for their own self image and behind the backs of the people democrats thieve from. They do it by recognizing weakness, hide the irresponsibilities and dump them on tax payers so the derelict democrats aren't recognized and WOOLA CRISIS! Derelict democrats expect more of some and nothing of others. Not fair and equal! This is a democrat mess and they need to be held accountable, like adults.

    6. Bobbie says:

      Andrew- In other words, they allow more people to own private property. ALLOW ANDREW?! ALLOW? Who forbid it???? NOBODY! You can't buy a house if you can't afford it and this was a disgrace from the beginning holding tax payers accountable to the mistakes of fannie and freddie. Of course owning property is a cornerstone. But you don't own it if you have to go through government to get it!

      In America, freedom is living without depending on government for anything regarding your lifestyle.

    7. Ralph Barrios says:

      Fannie & Freddie weren´t the problem in the past such as them are not the problem today. The system collapsed following "derivatives not controlled environment", there was a permisive wedding. Just regulating today, putting limits that will be enough. Privates that would like to be into the morgage market have to put more skin over the barbacoa.

    8. Zack says:

      Deregulation and neglecting regulatory reform was the majority of the problem. Conservatives owned the house and senate and did nothing. period, cut and dry. Stop following Heritgae, they have no interest in fact.

      Wells Fargo – $138.6B
      Goldman Sachs – $129.0B
      Morgan Stanley – $121.0B
      JP Morgan Chase & Co. – $221.7B
      Citigroup – $309.7B
      UBS – $228.6B
      Merrill Lynch – $115.4B
      -those top 7 private sector losses 2008/2009 can be found at- http://bankimplode.com/blog/category/writedowns-and-distress/
      -the remaining 290 private sector losses 2007-2008 can be found at-
      -so lets do a comparrison between government regulated lenders and private sector lenders…
      -2008/2009 net losses for fannie, freddie(primary G.S.E.’s) and the remaining
      smaller 16 lenders under C.R.A.from 2007/2008/2009 side note:(12 out of 16 were not listed under or subject to C.R.A in 2007)
      -Freddie Mac: $71.7 billion
      +Fannie Mae: $130.7 billion
      +other 16 lenders: 21.9 billion
      Total losses in 2008/2009 from all government regulated lenders was
      =***$224.3 billion*** bottom line losses for Fannie and Freddie were actually ***88%*** not 90% and for the other 16 lenders an average of ***64%*** concluding an estimated average of ***76%*** in bottom line losses
      -2008/2009 losses for private companie in the private sector that had absolutlely no government regulation
      -1.264 trillion from top 7 private sector losses (listed above)
      +435.6 billion from the remaining 290 private sector losses (listed above)
      Total losses in 2008/2009 from all private sector lenders was
      =***1.699 trillion***bottom line losses for all private sector lenders were an estimated average of ***83%*** in bottom line losses

      -infact, the private sector lenders had 19% higher losses then the other 16 smaller lenders under government regulation(C.R.A.)
      -though, Fannie and Freddie(primary G.S.E.’s had 5% higher losses then the private sector lenders.
      -so basically if you want to compare a higher loss with fannie and freddie at 5% to the private sector having $1.444 trillion more in actual losses then go right ahead!
      -or if you want to compare percentages…please, lets!
      - government losses make up for 13.5% while private sector losses make up for about 86.5% of total losses. wow, its funny how every single number comes close to that magic 85% of total private sector control in the entire housing market share!
      -again, so since fannie and freddie had 5% higher bottom line losses then the private sector lenders that means we should only trust free market lending?…

    9. Zack says:


      you stated-

      "Playing race and class warfare!? That’s not humanitarian! It’s worse than pathetic!"

      -what does race and class warfare have to do with anything regarding this blog? please cite specific examples? You seem to have a very serious problem with race, you mention it in nearly every comment you make? Why do you always bring up race?

      you stated-

      "The people need to understand, democrats exceed the limits of their duty for their own self image and behind the backs of the people democrats thieve from. They do it by recognizing weakness, hide the irresponsibilities and dump them on tax payers so the derelict democrats aren’t recognized and WOOLA CRISIS! Derelict democrats expect more of some and nothing of others. Not fair and equal! This is a democrat mess and they need to be held accountable, like adults"

      -im wondering, who was in complete charge of the house and senate for 12 years from the 103-109th congress? which party didn't pass a single bill for regulatory reform for the housing market? democrats need to be held accountable? -that opinion is impossible, both by legislative and numerical means. conservative republicans had the house and senate for 12 years and administration for 8.

      you stated-

      "You can’t buy a house if you can’t afford it and this was a disgrace from the beginning holding tax payers accountable to the mistakes of fannie and freddie"

      -hmmmm, interesting. so fannie and freddie alone pushed people to buy homes they couldn't afford? what about the other 85% of the market that was never touched by government? 1.699 trillion in losses without the government ever touching those loans? just fannie and freddie? again, impossible by numerical means.

      -your very broad and akward talking points, along with just about every conservative out there is boring and nothing close to fact. you disregard house and senate majority for 12 years, you disregard the market share percentage, you disregard that fact that fannie and freddie made up for a fraction of the housing market, you disregard legislative history. you can't keep telling a lie over and over and over and over again, it's still a lie.

      -look how mad you get with Andrew just for providing an opposing viewpoint. It is very strange and akward that you get emotional when someone produces fact.

      -Bobbie, your knowledge of the housing collapse is most embarrasing. please stop wasting everyones time. your comments are a waste of time. my cat could produce better comments just by walking across the keyboard at my home.

      -bringing your comments to utter destruction is like yawning in the morning, it's becoming too easy. I find this to be a waste of time.

      -very excited to read your upcoming personal attacks, akward emotional talking points and no evidence to support any claim of anything you have ever commented upon. :)

    10. Bobbie says:

      Zack, I will never fall for your distortions AND IGNORANCE. YOU LOSE!

    11. james moylan says:

      I would like to comment about freddie mac fannie mae. I can not understand the heritage foundations one sided views on some many issues a perfect example we all know that their is very much mismanagement in government. but in spite of this their are still many positive outcomes. an example is the public university system by the way I am not a liberal democrate. millions of students attend these universities and a substantial part of the cost of their education is paid for by the taxpayers many students come out of the university system with valuable skill sets in a variety of fields science engineering mathematics to which a large part is subsidized by the government. where would we be if the government was not a significant participant in the funding of their education many bright talented people would not have the financial wherewithal to fund their education without any financial assistance from government. I think on balance the benefits that society corporations and small business receive greatly out weigh any waste and mismanagment in the university system. this also go's for k though 12 although their are some school systems that are performing poorly their are three or four systems that perform well for every one system that performs poorly. I have never heard anyone from a right wing conservative group comment about a public school system that performs outstandingly why.

    12. Zack says:


      Wait, is that really your comeback? Is that it? I provide numerical evidence with links to back it up and you provide that? really? really?

    13. Zack says:


      challenge anything in either comment I made, just one thing. Challenge one thing with evidence to back it up. Go ahead, waiting…….

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.