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A Fannie & Freddie We Could Live With

The steady drumbeat of people weighing in on how to reform Fannie Mae and Freddie Mac continues with an op-ed from Mark Calabria and Alex J. Pollock in The Hill headlined, Making a Fannie and Freddie We Could Live With.

The impetus for the specific proposals they lay out is bringing an end to the current “conservatorship limbo, where they are run by their regulator as wards of the state, with de minimis capital.” Calabria is a former top aide on the U.S. Senate Banking Committee staff who played a key role in drafting the Housing and Economic Reform Act, which created the conservatorship as a short, interim step toward returning the to a “safe and solvent” condition.  Pollock is the former President and CEO of the Federal Home Loan Bank of Chicago. The current stalemate over a long-term solution and the ongoing undermining of the rule of law is clearly no longer acceptable to these policy experts.

The piece is a quick read comprised of seven steps that Congress could take now to “take away all [of] Fannie’s and Freddie’s special privileges” and make them competitive in the housing market. Once the steps are taken, Calabria and Pollock suggest that the GSEs could then be taken out of conservatorship. Investors Unite isn’t endorsing their seven-step plan but we wholeheartedly endorse and appreciate the growing sentiment that it’s time to follow HERA and to put Fannie and Freddie on the path to safety and soundness. From the op-ed:

“In spite of endless discussions of reform, they remain in conservatorship limbo, where they are run by their regulator as wards of the state, with de minimis capital.  Nobody wants the old Fannie and Freddie back; nobody wants them to stay on indefinitely in conservatorship. What is required are practical steps forward, rather than designing the ideal but politically unachievable solution.”

Calabria and Pollock suggest that the threat of receivership for the GSEs continues to hang over the mortgage finance arena. That threat seems to us to be sufficient incentive for the powers-that-be to put Fannie and Freddie on a solid footing, complete with adequate capital reserves and a competitive structure, as envisioned under HERA.