I know that Congress and the Obama administration have their hands full with the debt ceiling, the threat of budget "sequester" and the related battle over how much to raise taxes and cut entitlement spending. Even so, I have to ask: Are they ever going to get around to fixing Fannie Mae and Freddie Mac?
The fate of these two giant government-sponsored enterprises, which back or guarantee most home mortgages in the United States, might be as important to the economy as the federal debt.Yet their future has been unsettled since September 2008, when their regulator, the Federal Housing Finance Agency, seized control of them and declared them unable to withstand the housing market crash without an infusion of taxpayer funds. And that infusion has been massive: $187.5 billion.As intended, the bailout, or "conservatorship," as it's formally known, prevented a collapse that could have reverberated around the world, where investors -- including the central banks of China, Japan and other major nations -- hold hundreds of billions of dollars' in GSE securities.But even though it has lasted 52 months -- and counting -- the agency's conservatorship was never meant to be permanent. As long as they're in limbo, the GSEs can't truly plan a strategy, and their employee morale suffers. Above all, the housing market will remain too uncertain for the kind of private-sector commitments on which housing's full recovery depends.In recent years the GSEs have been a bone of partisan contention. Democrats generally supported them as a positive legacy of the New Deal and the Great Society that helped promote homeownership and build the middle class. Republicans decried them as corporate welfare for the housing industry.Neither side was free of self-interest: Democrats milked the GSEs to fund projects backed by their various constituencies; the GOP critique echoed that of Wall Street, which was encroaching on the GSEs' mortgage securitization business.Nor should one exaggerate the partisan divide. At various times, politicians from both parties engaged in boosterism about the "American dream" and used the GSEs to advance it.Still, experience mostly vindicates the GSEs' critics. Profit-motivated private investors owned stock in the GSEs; managers pursued shareholder profits with a funding advantage based on the implicit, but real, taxpayer guarantee. This encouraged Fannie and Freddie to take on excessive risk, with disastrous results. I never quite grasped the liberal love affair with these giant, politically connected financial corporations and their high-paid executives. Yes, benefits trickled down, in the form of higher homeownership rates. But after a point, these gains were unsustainable, as the crash proved.To its credit, the Obama administration has identified the GSEs' "structural design flaws, combined with failures in management," as "the primary cause of their collapse" -- as a Treasury Department report put it in 2011.Yet while the administration outlined several reform options, it did not push for any of them. (Republicans have floated plans with equal futility.) Meanwhile, the administration pressured the regulatory agency to manipulate GSE finances in favor of underwater homeowners -- ostensibly to free up cash for consumer spending and short-term economic growth.Edward F. DeMarco, acting director of the regulatory agency, justifiably resisted using the GSEs yet again as an off-budget cash cow. His reward was extravagant vilification from progressives.The GSEs are shrinking gradually, as well as stabilizing. With administration support, they raised fees to securitize loans, and DeMarco recently agreed with Treasury on modifications to the bailout that will help slim the GSEs even faster.The time is ripe for a conclusive fix. Despite the partisan wrangling and interest-group lobbying -- not to mention legitimate policy disagreements -- basic principles of a new mortgage finance system are widely agreed on. There should be no more confusion of public mission and private profit; government support, if any, should be transparent and limited to the truly needy.The American dream of homeownership is a good thing. Alas, we've been trying to have too much of it.Charles Lane is a member of The Washington Post's editorial board.Have more to add? News tip? Tell us
