- Obama military downsizing leaves U.S. too weak to counter global threats, panel concludes
- Sen. Tom Coburn vows to slow down budget-busting bills ahead of recess
- Obama fantasizes about more executive power, signs new order on federal contractors
- Clintons call Klein, Halper, Kessler ‘a Hat Trick of despicable actors’: report
- Boehner accuses Obama of ‘legacy of lawlessness’
- Pro-marijuana group claims responsibility for Brooklyn Bridge flag swap
- Young adults shun Obamacare mostly due to cost: survey
- Stabbing attack on transgender girl, 15, was ‘bias motivated,’ police say
- LGBT adults still lean overwhelmingly toward Democratic Party
- Lawmakers rattled by Syria genocide horrors, call on Obama to act
JOHN: End Fannie Mae and Freddie Mac
Question of the Day
It is time to pull the plug on Fannie Mae and Freddie Mac. Before they failed in 2008, both had moved well beyond their original raison d’etre: Providing low-cost funds to the housing market by packaging mortgages into bond issues and selling them to investors. Their investments in their own and others’ high-risk mortgage bonds failed spectacularly. The government was forced to take them over, costing taxpayers hundreds of billions of dollars.
Today, they remain under government control. They still account for more than 90 percent of the housing finance market. Because their fees for guaranteeing and packaging mortgages into bond issues are so low, the private sector is effectively frozen out.
Policymakers should be focused on fixing this dysfunctional approach to mortgage finance. Instead, the administration and its congressional allies have launched a series of generally unsuccessful efforts to enable borrowers to refinance homes that are now worth less than they owe.
With housing gradually rebounding, the need for mass refinancing programs has passed. Rising prices will enable underwater borrowers to return to building equity. Policymakers should now turn to developing a housing finance system that will stimulate housing sales.
The process of phasing out Fannie Mae and Freddie Mac can and should begin without delay. Both housing finance giants should gradually increase the cost of their services. This will enable private sector competitors to enter the market. The transition can take place without disrupting the housing market.
The specific steps necessary to eliminate both entities are:
1. Move Fannie Mae and Freddie Mac from conservatorship to formal bankruptcy. This would give the government the legal authority to close them down and replace them with a better housing finance model.
2. Repeal both entities’ perpetual federal charters and replace them with three-year charters that Congress may renew for a limited number of times if necessary.
3. Separate both portfolios of mortgage investments and turn them over for gradual liquidation to a new temporary subsidiary of the Federal Housing Finance Agency patterned on the Resolution Trust Corp., which handled the assets of failed savings and loans in the 1980s and 1990s. Liquidation should proceed as the market allows, with both entities barred from making any further portfolio purchases.
4. Reduce the conforming loan limits. These limits dictate the maximum size of the mortgages that Fannie Mae and Freddie Mac are allowed to purchase and include in mortgage-backed securities. Reducing the limit will enable private sector alternatives to replace the two giants.
6. Move all low-income housing goals and subsidies to the Department of Housing and Urban Development. Congress should then determine whether each of these policies should be continued or eliminated.
7. Sell remaining parts of Fannie and Freddie to private entities. Sales would not be based on geography, and certain parts would be reserved for sale to small banks, credit unions or smaller mortgage bankers to reduce the chance of housing finance being dominated by large companies.
8. Require continuing congressional oversight to monitor these changes and the development of a modern housing finance system.
TWT Video Picks
Both parties recognize the Democrats' scam
- Inside the Ring: Israel surprised by Hamas tunnel network
- Army's 3-D printed bombs to create 'a whole new universe' of lethal capabilities
- Chicken pox outbreak puts illegal immigrant facility on lockdown
- CRUZ: A tale of two hospitals: One in Israel, one in Gaza
- GOP leaders delay border bill, leave Obama in control
- Report: 40% of weapons sent to Afghanistan are unaccounted for
- CIA admits improperly hacking Senate computers in search of Bush-era information
- Israel surprised by Hamas tunnel network
- Colorado poll shows women tuning out Democrats' 'war on women' strategy
- 3 African leaders cancel trip to U.S. over Ebola outbreak; Obama still plans summit
Obama's biggest White House 'fails'
Celebrities turned politicians
Athletes turned actors
20 gadgets that changed the world