wallison - privatizing fannie mae, freddie mac, and the federal home loan banks; why and how (2004)

Privatizing Fannie Mae, Freddie Mac, and the Federal Home Loan Banks [...]... with the thin capitalizations and high risks of Fannie and Freddie would be unable to attract funds at a price that would enable them to acquire portfolios of mortgages or MBSs With the government’s 6 FANNIE MAE, FREDDIE MAC, AND THE FEDERAL HOME LOAN BANKS backing, they are able to do this, but in the process they are placing the risk of loss on the taxpayers while retaining the profits for themselves... government regulator to reduce the risks they create through their operations For example, if the regulator should decide that, in the interests of their safety and soundness and the protection of 14 FANNIE MAE, FREDDIE MAC, AND THE FEDERAL HOME LOAN BANKS taxpayers—their capital should be increased, the outcry would be deafening Fannie and Freddie will argue that increasing their capital requirements will... all the benefits homeowners receive from Fannie and Freddie without the need for government backing In particular, the MHS concept provides an efficient and viable substitute for Fannie and Freddie as a vehicle for funding long-term, fixed-rate home mortgages and thus should alleviate any concern that homeowners and home buyers will be disadvantaged by the elimination of Fannie and Freddie as GSEs The. .. agency for the regulation of Fannie and Freddie and the Federal Home Loan Banks Although how these GSEs are regulated is important, it is not the focus of the act, and if the act is adopted, regulation of the GSEs would be required for only a five-year period until they are finally sunsetted Nevertheless, we believe that the best regulator and supervisor during this limited period would be the Treasury... for the taxpayers or the economy, neither do they serve any useful purpose They receive a substantial subsidy but provide little assistance to homeowners As the OMB noted, some of the FHLB banks have not been well managed, and because of a perception that they are backed by the government they receive little market discipline to control their risks At 20 FANNIE MAE, FREDDIE MAC, AND THE FEDERAL HOME LOAN. .. the other hand, if we fail to strengthen GSE regulation, the possibility of an actual crisis or insolvency is increased.15 It takes little interpretive skill to recognize the implications of Chairman Greenspan’s statement: that the only viable solution to the risks 16 FANNIE MAE, FREDDIE MAC, AND THE FEDERAL HOME LOAN BANKS posed by Fannie and Freddie is privatization, removing them entirely from the. .. little value to the mortgage markets Weighed against the risks they create for the taxpayers and the economy generally, there should be no question that the nation would be better off with the termination of their government backing Federal Home Loan Banks Like Fannie and Freddie, the Federal Home Loan Banks gain an advantage over fully private sources of credit because of implied backing by the United... the economy is the development by the Federal Home Loan Bank of Chicago of the Mortgage Partnership Finance (MPF) program, which over time could provide some competition for Fannie and Freddie MPF is in fact one reason to privatize the FHLBs at the same time that Fannie and Freddie are privatized If Fannie and Fred-die alone are privatized, the MPF program will simply grow into the next government-backed-mortgage... others in the field 6 Fannie Mae’s long-term plans clearly involve pushing into consumer lending In a speech to the investment community in 1999, Fannie Chairman Franklin D Raines stated: Another way we are going to expand the mortgage debt market is to help consumers capitalize on the equity in their homes for things they need, whether it’s reverse mortgages to 12 FANNIE MAE, FREDDIE MAC, AND THE FEDERAL. .. enactment of the act, their portfolios and their overall size will immediately begin to decline as 22 FANNIE MAE, FREDDIE MAC, AND THE FEDERAL HOME LOAN BANKS mortgages are paid off or refinanced To supplement this normal runoff, the plan requires that Fannie and Freddie sell off mortgages and MBSs according to a previously established five-year schedule The purpose here is to assure that, at the end of . Privatizing Fannie Mae, Freddie Mac, and the Federal Home Loan Banks