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First Posted: 8/10/2013 Fannie Mae and Freddie Mac, as it turns out, were a pleasant fiction. The quasi-government guarantors of mortgage loans seemed like a good deal during the years they helped guarantee the availability of affordable, long-term home loans without any apparent cost &#8212; and, at times, with great private gain for their shareholders. But their true cost became all too real when the government&#8217;s implicit guarantee of Fannie and Freddie was made explicit during the housing crisis. The Bush and Obama administrations pumped $188 billion in borrowed taxpayer money into stabilizing Fannie and Freddie, lest they collapse and turn the Great Recession into another Great Depression.
Five years later, Fannie and Freddie have essentially crowded the private sector out of the housing market. They now guarantee nearly 90 percent of all home loans.
President Barack Obama waded into this precarious situation with a proposal to gradually wind down Fannie and Freddie and replace them with a predominantly private financing system for home mortgages. Though he did not go into great detail, his ideas more or less follow legislation drafted by a bipartisan group of senators.
The idea is that Fannie and Freddie would lose their implicit guarantee of government backing and would gradually liquidate their portfolios. Instead, private investors would bear the primary risk for the mortgages they issue and would be required to carry enough capital to cover significant losses. Meanwhile, a new government agency would regulate their activity and provide a backstop against losses. The agency would pay for itself through a fee assessed on mortgage-backed securities.
Such a system would likely increase the cost of borrowing somewhat, but what that really represents is the actualization of the unstated (and unassessed) cost we as taxpayers have assumed for decades by implicitly backing Fannie and Freddie. Previously, the extent of that commitment has been vague. This plan would make it transparent.
But as might be expected of any idea that has the backing of the White House and senators from both parties, it is likely dead on arrival in the Republican-controlled House of Representatives. The GOP majority there has no love of Fannie and Freddie, to be sure, but House conservatives want a much smaller role for the government in the housing market.
There is certainly a case to be made that Washington went too far over the years in encouraging universal home ownership. However, there&#8217;s a difference between re-balancing our housing policy and suddenly pulling the rug from under a sector that makes up a fifth of our economy.
What President Obama called the &#8220;heads we win, tails you lose&#8221; model of private profits and public obligation epitomized by Fannie and Freddie clearly needs to be reformed. But the government can and should play a constructive role in fostering the availability of affordable, long-term mortgages. We know that such a policy can be a key tool for building middle-class wealth; we just need to make sure its costs are clearly defined.
The Baltimore Sun

OTHER OPINION: HOME MORTGAGES TIME IS RIGHT TO UNWIND FANNIE AND FREDDIE