David J Reiss

The role of the Fannie Mae/Freddie Mac duopoly in the American housing market

Purpose - The purpose of this paper is to provide a brief introduction to the role of the Fannie Mae/ Freddie Mac duopoly in the American housing market. Design/methodology/approach - First, the paper defines the “government sponsored enterprise,” which is the type of hybrid public/private entity that Fannie and Freddie are and provides an introduction to the other significant government sponsored enterprises. It then explains what Fannie and Freddie do in the American mortgage market and provides a brief history of how the two companies developed. Finally, it evaluates the two companies as duopolists in the conforming mortgage market. Findings - The paper concludes by suggesting that the current financial crisis presents an opportunity to rethink whether the Fannie/Freddie duopoly continues to serve the public interest. Research limitations/implications - Because of its length, the paper does not review alternative approaches to the status quo that the US Government can take to ensure that it has a stable federal housing finance policy. Practical implications - The paper argues that the current financial crisis provides an opportunity to revisit the design of the structure of the US housing finance market. Originality/value - The paper sets forth the rationale and legal basis for characterizing Fannie Mae and Freddie Mac as duopolists.

Fannie Mae and Freddie Mac and the Future of Federal Housing Finance Policy: A Study of Regulatory Privilege

The federal government recently placed Fannie Mae and Freddie Mac, the government-chartered, privately owned mortgage finance companies, in conservatorship. These two massive companies are profit-driven, but as government-sponsored enterprises they also have a government-mandated mission to provide liquidity and stability to the United States mortgage market and to achieve certain affordable housing goals. How the two companies should exit their conservatorship has implications that reach throughout the global financial markets and are of key importance to the future of American housing finance policy. While the American taxpayer will be required to fund a bailout of the two companies that will be measured in the hundreds of billions of dollars, the current state of affairs presents an opportunity to reform the two companies and the manner in which the residential mortgage market is structured. Few scholars, however, have provided a framework in which to conceptualize the possibilities for reform. This Article employs regulatory theory to construct such a framework. A critical insight of this body of literature is that regulatory privilege should be presumed to be inconsistent with a competitive market, unless proven otherwise. The federal governments special treatment of Fannie and Freddie is an extraordinary regulatory privilege in terms of its absolute value, its impact on its competitors and its cost to the federal government. Regulatory theory thereby clarifies how Fannie and Freddie have relied upon their hybrid public/private structure to obtain and protect economic rents at the expense of taxpayers as well as Fannie and Freddies competitors. Once analyzed in the context of regulatory theory, Fannie and Freddies future seems clear. They should be privatized so that they can compete on an even playing field with other financial institutions and their public functions should be assumed by pure government actors. While this is a radical solution and one that would have been considered politically na?ve until the recent credit crisis, it is now a serious option that should garner additional attention once its rationale is set forth.

Fannie Mae and Freddie Mac: Creatures of Regulatory Privilege

As part of its response to the ongoing credit crisis, the federal government placed Fannie Mae and Freddie Mac, the government-chartered, privately owned mortgage finance companies, in conservatorship. These two massive companies are profit-driven, but as government-sponsored enterprises (GSEs) they also have a government-mandated mission to provide liquidity and stability to the United States mortgage market and to achieve certain affordable housing goals. How the two companies should exit their conservatorship is of key importance to the future of federal housing finance policy. Indeed, this question is of pressing importance as the Obama Administration has signaled that it would rely heavily on Fannie and Freddie as part of the short-term response to the foreclosure epidemic that has swept across America in the last couple of years. Once the acute crisis is dealt with, however, the Administration will need to put American housing finance policy on the right track for the long-term health of the system. This will require a framework for analyzing the needs of that system, a framework that this chapter provides.

Armed, Unarmed or Harmed by Knowledge? A Comment on the FHA's Housing Counseling Pilot Program

The FHA has requested input on its Homeowners Armed with Knowledge (HAWK) for New Homebuyers pilot program. This comment letter argues that housing counseling is not a proven solution to the problem it is meant to solve, excessive defaults by FHA borrowers. HAWK is a traditional housing counseling program but the scholarly literature casts into doubt the efficacy of such programs. It would be better to take time to research which counseling strategies, if any, are proven to be effective. This is true for the FHA but also for other government agencies, such as the Consumer Financial Protection Bureau, that have devoted significant resources to unproven financial counseling programs.

Fannie Mae and Freddie Mac: A Bibliography

This is an unannotated bibliography of writings about Fannie Mae and Freddie Mac as well as some material that covers other government sponsored enterprises such as the Federal Home Loan Bank System. While it is comprehensive, it is not exhaustive, with a focus on work published through 2011 by government agencies, economists, legal and policy scholars, private sector analysts and think tanks. It does not include Congressional testimony and shorter works. This bibliography will be posted on Wikipedia so that others can make additions to it. The text of this page and the attached downloadable document are available for modification and reuse under the terms of the Creative Commons Attribution-Sharealike 3.0 Unported License and the GNU Free Documentation License (unversioned, with no invariant sections, front-cover texts, or back-cover texts).