No Government-Sponsored Entity (“GSE”) can serve two masters.
OK, so that’s not exactly how the Biblical quote goes.
But it’s an apt description of the conundrum facing would-be reformers of Fannie Mae and Freddie Mac, the two now-state wards that buy or guarantee a stunning 96% of all U.S. mortgages.
The philosophically pure solution — dissolve them — risks throwing the housing market into disarray (or worse) by creating a financial vacuum.
Meanwhile, the clean, business solution — spin them out as for-profit’s and sever their government guaranties — likewise means no more government “sugar daddy” for the housing market.
The result has been a muddle: keep them alive, quarter-to-quarter, until the political will to tackle the problem head-on reaches critical mass.
Here’s another take on the two, mutually exclusive missions assigned to Fannie and Freddie:
America may want a private mortgage market, or it might want the security of a subsidized market. What every administration since L.B.J.’s has coveted and what has always been a lie is that we can get a subsidized market free.
–Roger Lowenstein, “Cracked Foundation“; The NY Times Magazine (4/25/10)
Read the rest of Lowenstein’s article for the complete (conflicted) history of Fannie and Freddie.