Privatizing Fannie Mae, Freddie Mac, and the Federal Home Loan Banks
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News that the Office of Federal Housing Enterprise Oversight has found accounting problems at Fannie Mae, similar to those that occurred at Freddie Mac, will sharpen the debate over the future of these companies and what the U.S. government should do about them. Up until now, tighter regulation has been the preferred approach, but accounting problems at Fannie once again suggest that regulators only find the most serious deficiencies when they have been alerted to look for them, and thus GSE regulation will always be a weak reed for protecting U.S. taxpayers and the economy as a whole. This suggests that privatization is an option policymakers should consider, since it has the potential to allay completely the risks associated with Fannie and Freddie and, to a much lesser extent, the Federal Home Loan Banks. Yet various privatization proposals in the past have raised objections: the privatized companies would dominate housing finance and be too big to fail; mortgage interest rates might rise.

In Privatizing Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (AEI Press, September 2004), the authors outline a privatization plan that prevents the privatized entities from dominating the residential mortgage-finance market or becoming too big to fail, as well as a residential mortgage-financing plan that offers the possibility of mortgage interest rates that are lower than those available through Fannie Mae and Freddie Mac, without government backing. Both plans were refined at a series of AEI conferences during the past year.

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About the Author

 

Peter J.
Wallison

 

Desmond
Lachman
  • Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund's (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and the multilateral lending agencies.
  • Phone: 202-862-5844
    Email: dlachman@aei.org
  • Assistant Info

    Name: Emma Bennett
    Phone: 202.862.5862
    Email: emma.bennett@aei.org

 

Alex J.
Pollock
  • Alex J. Pollock is a resident fellow at the American Enterprise Institute (AEI), where he studies and writes about housing finance; government-sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; retirement finance; and banking and central banks. He also works on corporate governance and accounting standards issues.


    Pollock has had a 35-year career in banking and was president and CEO of the Federal Home Loan Bank of Chicago for more than 12 years immediately before joining AEI. A prolific writer, he has written numerous articles on financial systems and is the author of the book “Boom and Bust: Financial Cycles and Human Prosperity” (AEI Press, 2011). He has also created a one-page mortgage form to help borrowers understand their mortgage obligations.


    The lead director of CME Group, Pollock is also a director of the Great Lakes Higher Education Corporation and the chairman of the board of the Great Books Foundation. He is a past president of the International Union for Housing Finance.


    He has an M.P.A. in international relations from Princeton University, an M.A. in philosophy from the University of Chicago, and a B.A. from Williams College.


  • Phone: 202.862.7190
    Email: apollock@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: emily.rapp@aei.org

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