Fannie Mae and Freddie Mac are government-sponsored enterprises that have aggressively used their government support to achieve extraordinarily high profitability and domination of the residential mortgage market. By the end of 1998, these two companies had assumed the risk of more than a quarter of all residential mortgages in the United States. According to the financial forecasts of their officials, they will hold almost half of all residential mortgage risk by the end of 2003.
In Nationalizing Mortgage Risk: The Growth of Fannie Mae and Freddie Mac, Peter J. Wallison and Bert Ely examine the implications of this uncontrolled growth--for the taxpayers, who ultimately stand behind these companies, and for the nonsubsidized lenders and other mortgage market participants, who must compete with them for residential mortgage assets. In the face of this de facto nationalization of the residential mortgage markets, Wallison and Ely point out several options for policymakers.
Peter J. Wallison is a resident fellow at the American Enterprise Institute, where he codirects the Program on Financial Market Deregulation.
Bert Ely, the principal at Ely & Company, Inc., is a consultant on monetary policy and financial institutions.