Glassman: Fannie Mae, Freddie Mac Reform ‘ObamaCare Of Real Estate’

net worth sweep Fannie Mae Freddie MacBy User:AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Former undersecretary of state and founding executive director of the George W. Bush Institute James Glassman called the mortgage system that would be assembled under the Crapo-Johnson proposal for GSE reform “the Obamacare of real estate” for taking a top-down approach to reshaping nearly one-sixth of the US economy.

There’s no question that the Crapo-Johnson plan is complex. It would create a new platform for securitizing mortgages, the Federal Mortgage Insurance Corporation (FMIC) to regulate that platform, a co-op so that small and medium sized banks can have access to the platform, and all the bureaucracy that goes along with those structures. Glassman is skeptical that the Federal government will be able to pull off the transition and end up with the efficient system as advertised.

He’s also concerned about bringing an additional $5.2 trillion in liabilities onto the Federal government’s balance sheets when Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are absorbed into the proposed FMIC.

Glassman opposes explicit and implicit Federal mortgage guarantees

Instead of replacing implicit guarantees with explicit ones, Glassman wants to see the government get out of the mortgage market altogether, though he acknowledges that it could be difficult for the government to persuade markets that it wouldn’t bail out Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) in the event of another housing crisis. Glassman jokingly recommends having the president make a speech declaring that the government will never bail out the newly privatized entities, but it’s hard to see what effect that would really have if a housing crisis hits ten years from now.

He argues, as others have, that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) worked well for decades until underwriting standards were undermined in the 1990s, something that he expects to see happen again as long as mortgage reinsurance is overseen by the government.

Alternatives to Crapo-Johnson need to address future bailouts directly

Ironically, this concern about backsliding into the risky loans and weak underwriting standards that are partially to blame for the housing bubble are why there is so much political consensus around getting rid of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) in the first place. Whether they exist as part of the government or private entities, Fannie Mae and Freddie Mac are clearly too big to fail. The momentum building around Crapo-Johnson is at least partially due to the pains it takes to insulate taxpayers from another bailout. Critics should be looking for an equally compelling way to protect taxpayers for their arguments to gain further traction.

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About the Author

Michael Ide
Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.

3 Comments on "Glassman: Fannie Mae, Freddie Mac Reform ‘ObamaCare Of Real Estate’"

  1. The government and tax payers makes lots of money when they bailed out Freddie and Fannie. They should continue to bail out housing and other businesses in the future. Its a much better money making system than the IRS. They should encourage more bailouts. Haha..the irony makes me laughed.

  2. Why some people are obsessed with reforming only FnF,
    when the crisis was caused by multitude of factors.
    These are some of factors reported by media.
    If we can work on these it will definitely bring back our
    legendary economy to full health.

    1. fraudulent lending,
    2. dishonest people infiltrating banking and financial industry,
    3. fraudulent rating of securities like MBS
    4. Overly complex transactions and instruments designed to hide deceit
    5. extreme financial leverage along with abandonment of risk management
    6. unlimited Politics and lobbying by financial companies
    7. falsification of financial reporting to earn out of the norm
    compensations and bonuses
    8. extreme greed with no accountability
    9. old boys club, cronyism, openly visible conflict of interests
    10. Stock market manipulations by unbridled short selling and insider trading
    11. Manipulation and rigging of financial market parameters by banks
    12. Antiquated and out of sync regulatory system

    precipitated and encouraged by
    1. elimination of common sense laws/regulations,
    2. clueless, underfunded, uninterested regulators,
    3. more than willing and complicit company auditors,
    4. Antiquated philosophy that free market economy will cure
    all social and economic malaise
    5. complacency of at all levels
    6. manipulative media and news

  3. Richard Thompson | Mar 28, 2014, 7:54 pm at 7:54 pm |

    They should simply let Fannie Mae and Freddie recapitalize and release them from conservatorship as directed under the Housing and Economic Reform Act of 2008. This is needlessly transfering 5.2 trillion dollars worth of assets between identically functioning enterprises at the risk of getting it seriously wrong and destroying our economy again. Fannie and Freddie did not cause the financial crisis as Congress would like the public to believe

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