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Presidential Candidates Urged to Reform Fannie Mae & Freddie Mac

open-micYears after the housing crash, American taxpayers still guarantee repayment for three out of every four mortgages, according an article from the Wall Street JournalAuthor, Edward Demarco challenges this implication on taxpayers by suggesting that Fannie Mae and Freddie Mac be reformed and removed from taxpayers pockets.

"Taxpayers shouldn’t be left holding the bag for mortgage defaults."

Demarco, a senior fellow at the Milken Institute’s Center for Financial Markets who from 2009 to 2014 served as acting director of the Federal Housing Finance Agency (FHFA), conservator for Fannie Mae and Freddie Mac, believes that reform is necessary for the GSEs to fix fundamental problems with the system. He also feels that this is a policy that presidential candidates need to address.

"Several comprehensive legislative proposals to replace Fannie and Freddie and revisit overall housing policy have been made," Demarco said. "But nothing has happened. So taxpayers guarantee repayment to investors on roughly three out of every four new mortgages today."

He adds, "taxpayers shouldn’t be left holding the bag for mortgage defaults," and as a solution, private capital needs to placed back into the system.

According to the article, Congress is urged to pass legislation that will ensure all securitizations involve enough risk transfer so taxpayers are left with credit risk only in dire situations.

Demarco also suggests that reforms under the FHFA's direction need to accommodate firms outside of Fannie and Freddie. The common securitization platform introduced by FHFA in 2012 will fix this issue by opening up the door to other firms to issue mortgage-backed securities equivalent to Fannie and Freddie’s.

"These two steps aren’t controversial. Every major legislative proposal in the past few years, Democratic and Republican, included them," Demarco noted. "What is needed is leadership, if not from the White House then from Congress. Government spends billions a year, including tax expenditures, on housing, much of which subsidizes higher-income homeowners. How could we eliminate some of this spending while redirecting another portion of it to the truly disadvantaged? Now that’s a discussion worthy of a presidential debate."

About Author: Xhevrije West

Xhevrije West is a writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.

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