Excerpt from Studies on Privatizing Fannie Mae and Freddie Mac The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Public Law 102-550, Section 1355) requires that the Comptroller General of the United States, the Secretary of Housing and Urban Development, the Secretary of the Treasury, and the Director of the Congressional Budget Office shall each conduct and submit to the Committee on Banking, Finance and Urban Affairs (now the Committee on Banking and Financial Services) of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate a study regarding the desirability and feasibility of repealing the federal charters of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), eliminating any federal sponsorship of the enterprises, and allowing the enterprises to continue to operate as fully private entities. The text of the congressional requirement is reproduced in full at the end of this introduction. This volume contains five analytical studies that were prepared to inform the four agencies as to the best current thinking on issues surrounding the concept of full privatization, preparatory to drafting their Reports to Congress on privatization. This volume supplements the separate reports of the Comptroller General, the two Secretaries, and the Director, as published independently by each agency. In addition to the five studies, the volume includes commentaries on the studies by academic experts and by Fannie Mae, and in several cases responses to the commentaries by the study authors. The commentaries were initially presented in seminars on drafts of the papers. Seminar participants included the authors, invited discussants, staff members from the four agencies and the Office of Federal Housing Enterprise Oversight, and representatives of Fannie Mae and Freddie Mac. The plan for the studies and seminar series was formulated by an interagency working group. This group designed the materials used in recruitment of authors, directed the author selection process, monitored preparation of the studies, and organized the seminars. It consisted of William Kruvant, William Shear, Mitchell Rachlis, Fred Evans, and Paul Thompson from the U. S. General Accounting Office; Harold Bunce, John Gardner, and Stephanie Smith from the U. S. Department of Housing and Urban Development (HUD); Joan Affleck-Smith, Edward DeMarco, and Mario Ugoletti from the U. S. Department of the Treasury; and Robin Seiler and later Marvin Phaup from the Congressional Budget Office. The Congressional Budget Office funded the Stanton paper, and HUD funded the other four papers. John Gardner of HUD served as general editor for this volume. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.

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The special status, large sizes, and recent rapid growth of Fannie Mae and Freddie Mac have created and/or contributed to a set of difficult policy problems that include: misguided and excessive subsidization of housing in the U.S.; the safety and soundness of the two companies; systemic risk; residential mortgage terms and structure; and the inherent efficiencies of the two companies. The two companies are embedded in a much larger web of policies that broadly and inefficiently encourage housing construction and consumption. The true privatization of the two companies is the best solution to the problems that specifically involve them and would constitute a good start toward correcting the excesses of American housing policy. This true privatization can be accomplished in a relatively clean and straightforward fashion.

Two of the largest government-sponsored enterprises (GSEs), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), receive government subsidies estimated to be worth $6 billion. Of that total, an estimated $2 billion goes directly as income to shareholders and employees of Fannie Mae and Freddie Mac. By design, the remainder of the subsidy largely diverts investment into the middle- and upper-income housing sector and away from capital sectors of the economy.Fannie Mae and Freddie Mac preserve their privileged status through a multi-million-dollar lobbying effort that includes massive "soft money" campaign contributions and the payment of exorbitant salaries to politically connected executives and lobbyists. The GSEs also protect their government-sponsored empire through millions of dollars of charitable donations to Washington advocacy groups.Because of their quasi-governmental status, there is a market perception that Fannie Mae and Freddie Mac mortgage-backed securities and debt carry an implicit federal guarantee against default. Hence, the GSEs expose the federal taxpayer to an ever-increasing potential contingent liability that could ultimately cost tens of billions of dollars to rectify.To remedy the situation, those GSEs should be stripped of the privileges of government sponsorship and be converted to fully private enterprises. The only remaining questions for analysis are when and how privatization should occur.