Don’t Kill Fannie and Freddie
By James K. Glassman
Five years after they were rescued with taxpayer money, Fannie Mae and Freddie Mack (FMCC) are thriving. The two giant providers of cash for mortgages now back almost 9 out of 10 home loans. Together, the entities paid the U.S. Treasury $66.3 billion in dividends on July 1 — a sum that extended the debt-ceiling deadline by a month. Now, policy makers are poised to eliminate the GSEs’ roles in home mortgages. A bill by Senators Mark Warner, a Virginia Democrat, and Bob Corker, a Tennessee Republican, would replace the two GSEs with a mortgage insurance fund that resembles the Federal Deposit Insurance Corp. In August, President Barack Obama indicated he was leading toward the Senate version. Both bills, however, would have serious negative consequences: — They require outright — as opposed to implicit — backing for all of the GSEs’ outstanding debt and mortgage-backed securities, with the “full faith and credit of the United States.” As Karen Shaw Petrou of Federal Financial Analytics Inc. told the American Banker: “If you give Fannie and Freddie that explicit guarantee for all their existing obligations, what’s the budget impact of that? It’s huge.” Fannie has $3 trillion in debt on its balance sheet; Freddie, $2 trillion. Those would become government