Replacing Fannie Mae And Freddie Mac Is A Fix That Has Nothing To Do With The Problem

Julie C. Nichols General

Forbes – Mark Greene

Earlier this month, President Obama renewed his call to replace Fannie Mae and Freddie Mac with private sector solutions, so that taxpayers would never again be forced to bailout the mismanagement of these gargantuan quasi-government entities.

A bipartisan proposal from the Senate has been served up to gradually build private sector financing markets that would somehow keep the federal government in the equation as the ultimate-worst-case-scenario backstop if needed. A more aggressive proposal from the House would simply phase out government involvement altogether and create a new secondary market space for private investment competition.

Our leadership is proposing the creation of a brave new uncharted mortgage finance world to be pioneered by the folks that brought us to the brink of financial Armageddon in 2007. Financial scholars like these ideas, citing increased competition and innovation resulting in new and improved product offerings. These proposals assume that replacing the draconian and dominant 30-year fixed rate mortgage with financing alternatives that better fit the needs of individual borrowers will create a more stable lending environment.

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