Reforming Fannie and Freddie

6 Pages Posted: 19 Feb 2009

See all articles by Dwight M. Jaffee

Dwight M. Jaffee

University of California, Berkeley - Finance Group; National Bureau of Economic Research (NBER)

Date Written: February 18, 2009

Abstract

There is a growing consensus that reform is needed for the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. It is often suggested that the connections between the GSEs and the federal government should be permanently severed and the firms reduced in size so that their instability will no longer threaten the broader housing market; however, political realities block that policy option. This article instead recommends that the firms' mortgage insurance and securitization business for be transferred to a government agency, where it would operate much like the longstanding and successful FHA and Ginnie Mae programs for lower-income mortgages. The retained mortgage portfolios would be spun off to the GSEs' shareholders, with no explicit or implicit links to the federal government.

Keywords: Fannie Mae, Freddie Mac, regulation, government-sponsored enterprises, housing, securities, mortage, privatization, mortgage-backed securities, subprime, financial, crisis, conservatorship, Ginnie Mae, Federal Housing Authority, FHA

JEL Classification: R3, R31, R38, R21, E44, G12, G18, G2, G21, G28

Suggested Citation

Jaffee, Dwight M., Reforming Fannie and Freddie (February 18, 2009). Regulation, Vol. 31, No. 4, Winter 2008-2009, Available at SSRN: https://ssrn.com/abstract=1346044

Dwight M. Jaffee (Contact Author)

University of California, Berkeley - Finance Group ( email )

Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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