How to Get the Government Out of Mortgage Lending

Bloomberg View | December 20, 2016        One of the least discussed challenges of the incoming Trump administration may also be among the most economically consequential: what to do with Fannie Mae and Freddie Mac, the government-controlled entities that own or guarantee about half of all U.S. home mortgages.

Trump's pick for Treasury Secretary, Steven Mnuchin, has said he wants to put housing finance back into private hands. Sensible as the goal may be, the hard part will be getting there.

Fannie and Freddie illustrate how slippery the term "private" can be. The two operated as privately owned corporations for decades, albeit with a congressional mandate to promote access to mortgage credit. They generated ample profits for shareholders and gained a dominant position thanks in large part to the expectation that the government would rescue them in an emergency. That perception proved correct in 2008, and they have been wards of the state ever since.

The failure of Fannie and Freddie has drawn the government far deeper into U.S. housing finance than it ever intended, at a time when even its pre-crisis involvement appears excessive. Subsidized lending may have boosted home ownership, but it also contributed to a consumer-debt burden that has hobbled the recovery and rendered the economy more prone to crisis. Most other advanced-nation governments play a much smaller role, with little apparent effect on home ownership.  Read more here.